The Best Small-Cap Funds to Buy and Hold
Small-cap stocks are more volatile and riskier compared with large-cap stocks, but it can provide diversification in a portfolio. These stocks derive earnings by selling products mostly in the U.S. unlike large-cap stocks that tend to be multinational companies, which receive a large portion of their revenue globally.
Small caps also may be more sensitive to slowing growth, says Jodie Gunzberg, chief investment strategist of Graystone Consulting, a Morgan Stanley business. "Small caps have provided investors with a positive return premium over large caps," she says. "In order to earn the premium, the small caps selected need to have quality, measured by positive earnings."
Here are seven top small-cap mutual and exchanged-traded funds.
1. iShares Core S&P Small-Cap ETF (ticker: IJR). The iShares Core S&P Small-Cap ETF is a passively managed fund that follows the S&P SmallCap 600 Index and is low cost and tax efficient. Small-cap funds which are part of a broader portfolio lower the amount of risk while adding stronger opportunities for growth, says R.M. Valdez, director of investments and portfolio manager at Partnervest Financial Group. "The opportunity for growth can be even more pronounced after a market pullback, as small caps tend to fall harder, but recover faster than large caps," she says.
2. iShares Russell 2000 Index (IWM). Another passively managed fund is IWM, which tracks the Russell 2000 benchmark index, the bottom two-thirds of small-cap stocks out of the index's 3,000. The top three holdings are Etsy (ETSY), Five Below (FIVE) and Cree (CREE), which are in the consumer discretionary and information technology sectors.
This ETF gives investors the ability to trade options and is utilized by Partnervest Financial Group. "IWM's deep option market makes this ETF a viable candidate for a buy-write strategy," Valdez says. – Ellen Chang
https://money.usnews.com/investing/buy-and-hold-strategy/slideshows/7-best-small-cap-funds-to-buy-and-hold
