Small Cap ETF 2017
Income investors have expectations for their investments, namely for them to generate a steady income and preserve investment capital. That’s why when looking for investment opportunities, the focus is typically on blue-chip companies due to their track records. But these are not the only companies that would meet the requirements of an income investor; there are also small-cap dividend companies.
Now you may be thinking small-cap companies may be risky, but there is a method that could be used to buy a group of professionally managed small-cap stocks at reduced overall risk. And that is by buying the best small-cap dividend exchange-traded funds (ETFs).
A big advantage of investing in small-cap ETFs is that one investment will be made into a group of 30, 40, even a hundred different stocks. This will save both time and money; if you constructed the same portfolio yourself, you would lose commission fees and the time spent researching each individual company. Not to mention you could miss a company that has a lot of potential growth ahead—or mistakenly invest in one that doesn’t.
Another problem that could arise with purchasing individual small-cap stocks is there may not be the liquidity needed in order to purchase or sell a position, forcing you to buy higher or sell lower than you desired. With small-cap dividend ETFs, liquidity is not an issue, since there is a lot of trading volume and therefore a higher probability of obtaining the price you want.
Purchasing a small-cap dividend ETF offers many other benefits as well, including diversification of your investments. So if there is one stock within the ETF that is performing poorly, then it could be offset by one that is performing well, helping to preserve capital.
These ETFs will also come with a professional management team that is keeping an eye on the investments within the portfolio. The portfolio managers overlooking the ETFs will review the investments to ensure that they meets the initial goal(s).
Since there are professionals overlooking the investment portfolio, you’ll need to pay a fee, which is charged from the assets within the ETF. If the fee is very high compared to another micro-cap dividend ETF, it may be best to stay away due to the potential impact on your return. This is known as the management expense ratio (MER and is a very cost-efficient method for making investment in small-cap dividend ETFs since there won’t be a big impact on your overall return.
Below is our small-cap ETF list, each of which should be considered for ownership.
Small Cap ETF List
| ETF Name | ETF Symbol | Price | Dividend Yield | Management Expense Ratio (MER) |
| iShares Russell 2000 Growth Index (ETF) | IWO | $158.98 | 0.93% | 0.25% |
| Vanguard Small-Cap Growth ETF | VBK | $139.09 | 0.67% | 0.07% |
| iShares S&P Small-Cap 600 Growth ETF | IJT | $150.93 | 1.02% | 0.25% |
| SPDR S&P 600 Small Cap Growth ETF | SLYG | $209.35 | 1.13% | 0.15% |
| Vanguard S&P Small-Cap 600 Growth Index ETF | VIOG | $129.27 | 1.24% | 0.2% |
| Guggenheim S&P SmallCap 600 Pure Growth ETF | RZG | $98.31 | 0.64% | 0.35% |
| First Trust Small Cap Growth AlphaDEX Fund | FYC | $35.78 | 0.30% | 0.7% |
| Janus Small-Cap Growth Alpha ETF | JSML | $30.76 | 1.80% | 0.5% |
| Vanguard Russell 2000 Growth Index Fund ETF | VTWG | $115.74 | 1.12% | 0.2% |
| iShares Morningstar Small-Cap Growth ETF | JKK | $150.63 | 1.14% | 0.3% |
1. iShares Russell 2000 Growth Index (ETF)
iShares Russell 2000 Growth Index (ETF) (NYSEARA:IWO) seeks to track the results of the Russell 2000 Growth Index. The focus in on small-cap growth stocks listed on the U.S. equity markets. The fund normally invests 90% of the ETFs’ assets in the same securities as the index. The remainder of the fund is invested in cash equivalent securities or options to take advantage of the current market conditions.
More than half of the IWO ETF’s assets are invested in the technology, healthcare, and industrial sectors.
A micro-cap dividend ETF, IWO’s quarterly dividend payment has more than doubled since 2013.
2. Vanguard Small-Cap Growth ETF
Vanguard Small-Cap Growth ETF (NYSEARCA:VBK) is designed to track the performance of the CRSP U.S. Small-Cap Growth Index. Either all or the majority of the assets are used to replicate the index, based on the same percentage of the weighting of each security.
The VBK ETF is a great way to achieve diversification since the assets are invested in nine different sectors and consist of over 600 stocks. Also, no holding within VBK represents more than one percent of the total investment.
The cost of owning this ETF is very reasonable, with an MER of 0.08%. So for each $100.00 that is invested in VBK, the management team will receive $0.08 annually as the MER fee.
3. iShares S&P Small-Cap 600 Growth ETF
iShares S&P Small-Cap 600 Growth ETF (NYSEARCA:IJT) tracks the performance of the S&P Small-Cap 600 Growth Index, which measures the performance of U.S. equities that are classified as small-cap growth companies.
Approximately half of the assets are invested in three sectors: technology, financial services, and industrial.
The IJT ETF has been available for investment for more than 15 years, rewarding investors with a dividend payment all the while. The dividend has seen growth over time, including more than doubling over the past three years.
4. SPDR S&P 600 Small Cap Growth ETF
SPDR S&P 600 Small Cap Growth ETF (NYSEARCA:SLYG) seeks to track the performance of the S&P Small-Cap 600 Growth Index. The focus of the fund is attempting to have the same risk and return as the underlying index.
Almost all of the assets within the ETF are invested in small-cap companies that are based in the U.S. One investment does not account for more than two percent of a capital allocated in a single stock.
There are more then 300 stocks that are held within the ETF and it is diversified in 10 different sectors, the largest being financial.
SLYG’s payout is provided on a quarterly basis and has more than tripled over the past three years.
5. Vanguard S&P Small-Cap 600 Growth Index ETF
Vanguard S&P Small-Cap 600 Growth Index ETF (NYSEARCA:VIOG) is designed to track the performance of the S&P Small-Cap 600 Growth Index. The ETF holds the same percentage of each holding as the index does.
Even though the holdings are growth companies within the ETF, the daily volatility is in the same range as the overall market. If there happens to be a move of one percent in the overall index, then VIOG should generally see equal movement.
As for paying the portfolio management team, the cost of owing VIOG is a very modest 0.2%, or $0.20 paid annually per $100.00 investment.
6. Guggenheim S&P SmallCap 600 Pure Growth ETF
Guggenheim S&P SmallCap 600 Pure Growth ETF (NYSEARCA:RZG) tracks the performance of the S&P Small-Cap Pure Growth Index’s total return. The ETF only owns companies with a strong growth profile within the 600 that make up the underlying index.
The fund is invested in 10 different sectors, with the majority of the assets invested in the healthcare, technology, industrial goods, consumer discretionary, and financial segments.
The dividend has been in place since the inception of the ETF in 2006. It is paid out on a quarterly basis and has seen growth over the years.
7. First Trust Small Cap Growth AlphaDEX Fund
First Trust Small Cap Growth AlphaDEX Fund (NASDAQ:FYC) replicates the price and yield of the NASDAQ AlphaDEX Small Cap Growth Index. FYC only purchases the top 262 from the index’s 700 businesses.
Management looks at a few different metrics before an investment is made, including price momentum, book value to price, and cash flow to price. The securities held within the fund are reviewed on a quarterly basis to ensure only the best small-cap growth companies are owned. Despite this focus, one investment position will not represent more than one percent of the overall holdings.
A dividend has been paid out since the ETF became available for purchase on the market in 2011 and is received by shareholders on a quarterly basis.
8. Janus Small-Cap Growth Alpha ETF
Janus Small-Cap Growth Alpha ETF (NASDAQ:JSML) tracks the Janus Small-Cap Growth Alpha Index. Normally, at least 80% of the fund’s assets are invested in the securities that comprise the underlying index.
The focus of the holding is investing in small-cap, growth-oriented companies that have high potential for returns. More than half of the assets are invested in the technology, healthcare, and industrial sectors.
The index is made up of more than 1,100 companies, though this ETF only looks to hold the best. This is why there are only approximately 200 stocks held within in the JSML ETF.
Since the time is taken to pick and choose only certain stocks to invest into, the MER fee is a bit higher compared to competitors at 0.50%.
JSML ETF is a fairly new ETF, having been introduced in 2016. Since then, it has been paying a dividend to holders of this ETF.
9. Vanguard Russell 2000 Growth Index Fund ETF
Vanguard Russell 2000 Growth Index Fund ETF (NASDAQ:VTWG) is designed to track the performance of the small-cap growth stocks that are trading on the U.S. trading exchanges, using the Russell 2000 Growth Index. The ETF weighs using the same proportions as the index.
Within the VTWG ETF are over 1,100 stocks based in 10 different sectors. The technology sector represents the largest percent of investments with just over one-fifth of assets. No more than one percent that is invested in one individual stock.
The dividend is paid on a quarterly basis and has seen gradual growth.
10. iShares Morningstar Small-Cap Growth ETF
iShares Morningstar Small-Cap Growth ETF (NYSEARCA:JKK) seeks to track the investment results of the Morningstar Small Growth Index, which consists of U.S. small-cap companies that have high growth outlooks. Typically, at least 90% of the funds within the assets are invested in the securities that make up the underlying index, while the remainder sits in cash-equivalent investments.
When initially thinking of investing in small-cap stocks, your first response might be that the investment is too risky for your portfolio. However, this is not the case; JKK ETF has the same risk as the overall market. This is evident given JKK’s beta; if the overall market saw a one-percent move, then JKK ETF should see approximately the same daily return.
Since the inception of the fund in 2004, the dividend paid to investors has been growing.