Published September 27, 2012
Among the flurry of new exchange-traded products to come to market in 2012 (approximately 150) a fair amount of ETFs offering exposure to small-cap equities have debuted. Some offer fresh ways to play stocks with small market values while others are new versions of funds that previously failed.
Several of these new small-cap funds have already joined an interesting club in the ETF universe. Meaning these rookie ETFs share the dichotomy of low assets under management totals and strong performance.
Perhaps it has been a tumultuous market environment that has hampered inflows to these ETFs, but that theory belies the impressive gains these funds have offered. In fact, some of the following funds have outperformed the $17.7 billion iShares Russell 2000 Index Fund (IWM) since coming to market.
iShares MSCI All Country Asia ex Japan Small Cap Index Fund (AXJS)
Home to a whopping 707 stocks, the Shares MSCI All Country Asia ex Japan Small Cap Index Fund debuted in early February, but the fund has toiled in anonymity. Currently, AXJS has just $2.8 million in AUM, but that does not mean this is not a good product.
AXJS has lagged behind IWM, though it that is not surprising as global investors have preferred U.S. equities this year. Still, the ETF is up almost eight percent in the past three months. With the Asia ex-Japan focus, AXJS country lineup is predictable as Taiwan, South Korea, Hong Kong and China combine for almost two-thirds of the fund's weight.
SPDR S&P Small Cap Emerging Asia Pacific ETF (GMFS) The SPDR S&P Small Cap Emerging Asia Pacific ETF is perhaps a microcosm of just how hard it is for new ETFs to gain traction with investors. GMFS obviously has the benefit of hailing from a large sponsor and the concept itself is unique. Simply put, this is a more emerging markets version of AXJS.
That also means that since Taiwan and China have plenty of small-caps to offer up, the two nations combine for over 64 percent of the ETF's weight. Not many folks have heard of GMFS, so that probably means they do not know the fund only has $2.2 million in AUM. That also means they do not that since its debut, GMFS has beaten IWM by almost 150 basis points.
iShares MSCI Singapore Small Cap Index Fund (EWSS)
Singapore is a developed market and one of Asia's financial capitals, but EWSS has struggled to step out of the shadow of the $1.5 billion iShares MSCI Singapore Index Fund (EWS). Maybe investors have not yet developed a taste for Singaporean small-caps or maybe they just do not want another Singapore ETF with an obscene weight to financials (EWSS devotes 54.3 percent to the sector.)
Whatever the reason is for the struggles of EWSS, the ETF has just $3.3 million in AUM. That does not change the fact that since its January debut, EWSS has offered more than triple the returns of IWM. EWSS is up 28.4 percent since coming to market, indicating investors have thus far missed a good thing with this ETF.
PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS)
DWAS is the newest of several PowerShares ETFs to employ Dorsey Wright relative strength selection methodology. It is also the largest of the funds on this list with $11.9 million in AUM, a solid total for an ETF that is barely more than two months old.
DWAS is home to just 200 stocks, making it much smaller than IWM and the iShares S&P SmallCap 600 Index Fund (IJR). However, DWAS might be proving that the relative strength methodology behind the fund works and that investors do not need to gorge on a huge number of small-caps to find a good small-cap ETF.
In the past two months, DWAS has easily outperformed IJR and IWM and has done so with a much lower price-to-earnings ratio than IJR's.
First Trust Developed Markets Ex-US Small Cap AlphaDEX Fund (FDTS)
The First Trust Developed Markets Ex-US Small Cap AlphaDEX Fund is another example of an ETF that uses an interesting screening methodology.
In the case of FDTS, its index is constructed by "ranking the eligible small cap stocks from the S&P Developed Markets ex-US BMI universe on growth factors including 3-, 6- and 12-month price appreciation, sales to price and one year sales growth, and separately on value factors including book value to price, cash flow to price and return on assets. All stocks are ranked on the sum of ranks for the growth factors and, separately, all stocks are ranked on the sum of ranks for the value factors,"according to First Trust.
The fund's name might lead investors to believe it offers to a lot of developed markets. In reality, FDTS has a country roster of just 10 and the lineup is dominated by Japan and South Korea. That pair represents over 46 percent of the ETF's weight.
With nearly $2.9 million in AUM, FDTS has fallen since its debut, but is up over the past 90 days. In the past month, FDTS has offered more than double the returns of IWM and more than triple the gains posted by IJR.
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