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Finally, Small Cap Sector ETFs!

Wyatt Research Staff
April 16, 2010

<title></title> <style type="text/css"> </style> I have some big news to reveal today for die-hard small-cap investors. For those of us who love to invest in small-caps, major developments that help us break down the small-cap universe don't come along that often. That's because large-caps tend to get the majority of the investment community's attention, and small-caps often fly under the radar.  I've often found it incredibly frustrating that there is not a way to segment small-cap indices like the Russell 2000 and the S&P SmallCap 600 Index. Sure we can buy ETFs that track these two indices, but we couldn't get any more granular than that. But all that just changed.    Thankfully, PowerShares recently came out with its lineup of Small Cap Sector ETFs. This is a huge deal, and I recommend you pay attention to these funds. But before discussing them, I'd like to give just a little context.   We all know about the Standard and Poor 500, the index is comprised of 500 large-cap stocks that are widely used as a representation of 'the market'. If somebody tells you the average market return over the last 10-years was 7% annually they are probably referring to the S&P 500. Investors who want to buy an ETF that tracks the S&P 500 can easily purchase the SPDR S&P 500 Trust ETF (NYSE: SPY).    But investors who want to purchase an ETF that tracks just one sector of the S&P 500 can do that too. The ETF company Select Sector SPDRs offers specialized ETFs for each of the nine sectors in the S&P 500. If you were to purchase each ETF in the right proportion, you could emulate a position in the SPY.  Now small cap investors can do the same thing with the S&P Small Cap 600. What these new funds will allow us to do (if the funds are balanced properly) is to compare the performance of one sector of small-cap stocks with another. Equally important, we'll be able to approximate the performance of small-cap stocks in one sector with large-cap stocks in the same sector. Or we can compare small-caps in one sector with small-caps across all sectors, etc., etc. By this point you get the picture. We're going to have a lot more granularity when it comes to segmenting small-cap stocks.   The nine sectors and their ticker symbols are as follows: <ol> <li> PowerShares S&P SmallCap Consumer Discretionary (XLYS) </li> <li> PowerShares S&P SmallCap Consumer Staples (XLPS) </li> <li> PowerShares S&P SmallCap Energy (XLES) </li> <li> PowerShares S&P SmallCap Financials (XLFS) </li> <li> PowerShares S&P SmallCap Health Care (XLVS) </li> <li> PowerShares S&P SmallCap Industrials (XLIS) </li> <li> PowerShares S&P SmallCap Information Technology (XLKS) </li> <li> PowerShares S&P SmallCap Materials (XLBS) </li> <li> PowerShares S&P SmallCap Utilities (XLUS) </li> </ol> You'll notice that PowerShares has followed Select SPDRs' ticker convention, but has added the 'S' at the end, presumably to denote small-cap stock.    Each of these funds is listed on the NASDAQ, and has an expense ratio of 0.29%. Invesco PowerShares managing director of global ETFs had the following to say on the company's 'first mover' status with small-cap sector ETFs, "We take great pride in being a leading ETF innovator, and are pleased to introduce a unique suite of small-cap sector portfolios that offer investors access to a vibrant portion of the U.S. equity universe…Over the long term, small-cap companies have outperformed large caps with much of this out-performance occurring during post-recessionary periods. We believe the PowerShares S&P SmallCap Sector Portfolios provide investors a compelling new way to implement sector-based strategies using the beneficial ETF structure."  I couldn't agree more, and I'm excited to add each of these funds to my watch list. But one word of caution: don't go out and just buy the fund that covers the small cap sector that you think will outperform.  It will take some time for liquidity to pick up on these funds, and you'll definitely want to do some research to see exactly what the allocation in each particular fund is. But with a little homework on these ETFs we will be able to save a ton of work that was previously required to follow sector trends in small-cap stocks.    The bottom line is that this is an exciting development, and is likely to help us decipher what is going on with small cap stocks in the future.   ***On a completely different note, I want to let you know that Trademaster editor Jason Cimpl is looking for readers to write in with ticker symbols for their favorite stocks. Starting on Monday Jason will take the tickers you send in and do a full charting analysis video -- helping you decide whether there's gains to be had. He'll share more information with me over the weekend. So for now just start thinking about which stocks you'd like Jason to evaluate for you and I'll give an update in Monday's newsletter. <span style="font-size: 10pt; font-family: Arial; background-image: url(file:///C:/Documents%20and%20Settings/wermere/Desktop/Web%20Site%20Updates/SCI%20Daily/April%20%2710/none); background-repeat: repeat; background-attachment: scroll; background-position: 0% 0%;"> <a href="http://www.trademasterstocks.com/landing/realestate/tdsachinarealestlandsciol.htm"> You can also check out Jason's trading service over the weekend by clicking here</a>. Have a great weekend.

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Finally, Small Cap Sector ETFs!

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