Best Small Cap ETFs for 2024
Investing in small-cap ETFs or stocks is sometimes described as trying to find companies of the future. What exactly small-cap ETFs are, as well as the pros and cons of investing in them, is explained in this article. A list of the best small-cap ETFs as a starting point for research is also provided.
Table of Contents
What are Small Cap ETFs
‘Small-cap’ stands for small capitalisation and refers to companies with a relatively small valuation that falls somewhere between $250 million and $2 billion, though the numbers vary according to some definitions. Small-cap companies are the opposite of large-cap companies, which generally have a minimum valuation of $10 billion according to most definitions. In between these exist medium-cap companies.
An Exchange-Traded Fund is a collection of equities, usually stocks, which trade together under a single share price. When an investor buys an ETF, the fund manager puts that money into the underlying assets. The investor obtains proportional shares of all the stocks contained in the ETF.
Small-cap ETFs thus comprise a selection of equities from companies typically valued within the range of $250 million to $2 billion. They offer a way for investors to gain exposure to companies with a relatively modest market capitalisation.
Best Small Cap ETFs to Watch
The following list of the best small-cap ETFs is a good starting point is an excellent starting point for research investors should perform before making investment decisions. The best small-cap ETFs are candidates for investors looking to build a portfolio with exposure to small-cap stocks. Whatever makes for the ‘best’ investment is, however, dependent on the investor’s personal situation and is subjective.
- iShares S&P Small Cap 600 ETF – Tracks S&P Global index of 600 small-cap U.S. companies
- SPDR Russell 2000 U.S. Small Cap ETF – Representative sample of U.S. small-cap sector tracking index
- Xtrackers MSCI Europe Small Cap Index ETF – Small-cap companies from developed European countries
- SPDR S&P International Small Cap ETF – non-US companies with a market capitalisation of under $2 billion, global focus
iShares S&P Small Cap 600 ETF
The iShares S&P Small Cap 600 ETF (IDP6.UK) is a candidate for investors who want exposure to a broad selection of American small-cap stocks. This ETF tracks an index maintained by S&P Global. Several inclusion criteria for stocks are employed, such as having positive as-reported earnings over the most recent quarter and over the past four quarters summed together.
The following 10 stocks represent the largest 10 positions in the iShares S&P Small Cap 600 ETF: SPS Commerce Inc (~0.7%), Cytokinetics Inc (~0.7%), Fabrinet (~0.7%), Applied Industrial Technologies Inc (~0.6%), BLK ICS USD LIQ Agency Dis (~0.6%), Ensign Group Inc (~0.6%), DoubleVerify Holdings Inc (~0.5%), Meritage Corp (~0.5%), Mueller Industries Inc (~0.5%), and Boise Cascade (~0.5%).
The main economic sectors the stocks in the iShares S&P Small Cap 600 ETF fall into are: industry (~18%), financial markets (~18%), luxury consumer goods (~15%), IT (~12%), and healthcare (~11%). Other sectors include real estate (~7%), materials (~6%), and energy (~4%).
SPDR Russell 2000 U.S. Small Cap ETF
The SPDR Russell 2000 U.S. Small Cap ETF (R2US.UK) seeks to track the performance of the Russell 2000 index. This index tracks 2000 U.S. small-cap stocks. The fund uses sampling, that is, buying a selection of the most relevant stocks in the index to replicate the index’s performance.
The SPDR Russell 2000 U.S. Small Cap ETF features the following 10 stocks as its largest individual holdings: Super Micro Computer Inc (~1%), e.l.f. Beauty Inc (~0.3%), Onto Innovation Inc (~0.3%), Fabrinet (~0.3%), Simpson Manufacturing Co Inc (~0.3%), Comfort Systems USA Inc (~0.3%), BellRing Brands Inc Class A (~0.3%), Rambus Inc (~0.3%), Light & Wonder Inc Ordinary Shares (~0.3%), and Cytokinetics Inc (~0.3%).
The SPDR Russell 2000 U.S. Small Cap ETF has its capital spread over multiple economic sectors, including: technology (~16%), industrials (~16%), healthcare (~16%), financial services (~15%), and cyclical consumer goods (~10%). Other sectors include real estate (~7%), energy (~7%), and raw materials (~5%).
Xtrackers MSCI Europe Small Cap Index ETF
The Xtrackers MSCI Europe Small Cap Index ETF (DX2J) offers investors exposure to a broad range of small-cap companies from European developed nations. This fund tracks the MSCI Total Return Net Europe Small Cap Index. Roughly 14% of the free float market capitalisation in the European stock market is included in this ETF. Its capital allocations are based on the weighted market capitalisation of each stock.
The Xtrackers MSCI Europe Small Cap Index ETF has the following 10 companies as its largest capital allocations: Trelleborg AB B SHS (~0.6%), Banco de Sabadell SA (~0.5%), Rexel SA (~0.5%), Intermediate Capital Group (~0.5%), Addtech AB B Shares (~0.5%), Marks & Spencer Group PLC (~0.5%), Weir Group ORD (~0.5%), B&M European Value Retail SA (~0.5%), PSP Swiss Property AG REG (~0.5%), and Diploma ORD (~0.5%).
The main economic sectors covered by the Xtrackers MSCI Europe Small Cap Index ETF are: industrials (~30%), consumer staple goods (~15%), materials (~15%), and consumer discretionary goods (~11%). Healthcare (~9%), financials (~8%), and utilities (~5%), among others, make up for some of the rest of the fund’s capital.
SPDR S&P International Small Cap ETF
The SPDR S&P International Small Cap ETF seeks to track the performance of the S&P Developed Ex-U.S. Under USD 2 Billion Index which tracks non-US companies with a market capitalisation of under $2 billion. The minimum market capitalisation for a company to be included in this index is $100 million, as well as being located in a country that satisfied the BMI Developed World Series Criteria.
The 10 largest capital positions of the SPDR S&P International Small Cap ETF are: HUB24 LTD (~0.2%), Kanematsu Corp (~0.2%), Nikkon Holdings Co LTD (~0.2%), Champion Iron LTD (~0.2%), Morphosys AG (~0.2%), Toagosei Co LTD (~0.2%), Protector Forsikring ASA (~0.2%), Criteo SA Spon ADR (~0.2%), Peyto Exploration + Dev Corp (~0.2%), Secure Energy Services Inc (~0.2%).
The economic sectors most represented by the stocks in the SPDR S&P International Small Cap ETF are: industrials (~22%), information technology (~13%), materials (~12%), and consumer discretionary goods (~12%). Other sectors include financials (~10%), healthcare (~9%), and real estate (~8%).
With Admiral Markets you can trade the SPDR S&P International Small Cap ETF CFD (#GWX). CFDs, or contracts for difference, are derivative contracts that track the underlying price of an asset. This enables investors to trade long and short using leverage. Learn more in The CFD Trading Guide.
How to Invest in Small Cap ETFs
With Admiral Markets, you can trade and invest in numerous small cap stocks and ETFs from all around the world, with the following commissions:
- UK stocks and ETFs – 0.1% of trade value, 1 GBP minimum commission.
- US stocks and ETFs – From $0.02 per share, 1 USD minimum commission.
- France/Germany stocks and ETFs - 0.1% of trade value, 1 EUR minimum commission.
You can learn more about trading and investing commissions on the Admiral Markets Contract Specification page. You can search for Small Cap stocks and ETFs from the MT5 web platform and invest in four steps:
- Open an account with Admiral Markets.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Conclusion: Pros & Cons of Small Cap ETFs
Generally, an advantage of investing in the best small-cap ETFs is the possibility of buying into companies that are still in their nascent stage before they take over a market with an innovative product or new technology. Many institutional investors have internal rules that dictate a minimum market capitalisation before they invest in a stock, meaning that a small-cap company might not have been ‘discovered’ by Wall Street just yet.
Another advantage of investing in the best small-cap ETFs is diversification among a broad range of different small-cap companies. Many of the best small-cap ETFs contain a portfolio of hundreds of different businesses, protecting the investor from the downside risk associated with investing in a single business.
As a disadvantage, investing in the best small-cap ETFs is associated with more risk than investing in large-cap stocks or broadly in the whole stock market. The share price of the best small-cap ETFs fluctuates more because smaller companies' valuations respond more to capital inflows and outflows than larger companies.
Another disadvantage of investing in the best small-cap ETFs is a larger knowledge asymmetry. Less is known about small capitalisation companies because they receive less attention from market analysts and industry pundits. This means that investors might have a more difficult time figuring out the viability of a small-cap company as an investment opportunity. It should be noted that this disadvantage is alleviated somewhat by small-cap ETFs that invest in a broad range of small-cap companies.
Continue Reading:
- Best Small Cap Stocks
- Top 10 UK Shares to Watch
- Best NASDAQ ETF
- Best S&P 500 ETF
- Best Vanguard ETFs
- What Are ETFs? ETFs Explained
- How to Trade ETFs with €1000
- The CFD Trading Guide
FAQs on Best Small Cap ETFs
Which small-cap value ETF is best?
Small-cap ETFs target companies with market capitalisations ranging from a few hundred million dollars to around $2 billion. The best small-cap value ETFs often impose additional criteria, such as positive quarterly numbers, but these are typically unrelated to market capitalisation and more aligned with value investing principles, seeking favorable price ratios and high dividend yields.
What is the best small-cap growth ETF?
Many top small-cap ETFs prioritise growth, like the SPDR S&P International Small Cap ETF or the iShares S&P Small Cap 600 ETF, which hold stocks with the potential for rapid growth. However, this is not a guarantee, and it’s crucial to acknowledge the inherent risk in investing and that past performance does not guarantee future outcomes when constructing a portfolio.
Are small-cap ETFs worth it?
The decision to invest in the best small-cap ETFs should be based on diligent research. The best small-cap ETFs include the SPDR Russell 2000 U.S. and the Xtrackers MSCI Europe Small Cap Index ETF, but investors should determine their own needs and financial situation before making an investment decision.
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