Small Cap ETFs & Stocks Crushing Russell 2000

Market sentiments turned extremely bullish with the major indices hitting new highs after a nasty trading spell in August. Though the S&P 500 index breached the 2,500 milestone, the Russell 2000 index is easily outperforming with 6.4% gains in a month.

The returns were mainly driven by hopes of a tax reform, which is expected by the end of the year. If Congress approves the corporate tax rate cut from 35% to 15% as President Trump has proposed, small caps with a median effective tax rate of 31.9% will be the biggest beneficiaries. Additionally, lofty large-cap valuation, North Korea tension and chances of an end to the cheap monetary policy era across the globe have added to the strength in small-cap stocks.

Further, growth in the U.S. economy appears solid courtesy of an impressive labor market, increase in wages, increasing consumer spending and high consumer confidence. Against such a backdrop, small-cap stocks are the biggest beneficiaries as these are closely tied to the U.S. economy and do not have much exposure to the international market. These pint-sized stocks generate most of their revenues from the domestic market and generally outperform on improving American economic health.

Moreover, the rise in U.S. dollar and the prospect of further rate hikes will continue to give a boost to the pint-sized stocks. Notably, these stocks are free from the clutches of any political malaise like the political grid in Washington or a strong greenback.

Given this, there have been winners in many corners of the small cap space. Below we have presented five ETFs & stocks that have easily crushed the Russell 2000 index in a month and are likely to continue their strong performance:

Best ETFs

All these funds have a favorable Zacks Rank of 1 (Strong Buy), 2 (Buy) or 3 (Hold), suggesting more room for upside.

Guggenheim S&P SmallCap 600 Pure Value ETF (RZV - Free Report)

This fund provides pure exposure to the small-cap value segment of the U.S. equity market by tracking the S&P SmallCap 600 Pure Value Index.

Zacks ETF Rank: #3
AUM: $169.5 million
Expense Ratio: 0.35%
One-Month Return: 10.6%

PowerShares S&P SmallCap Industrials Portfolio (PSCI - Free Report)

This product follows the S&P SmallCap 600 Capped Industrials Index, which measures the performance of the companies engaged in the business of providing industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace and defense and general manufacturing.

Zacks ETF Rank: #2
AUM: $93 million
Expense Ratio: 0.29%
One-Month Return: 9%

iShares Micro-Cap ETF (IWC - Free Report

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