It’s an idea so exciting, you might wonder why it hasn’t been done before. On the heels of a post-recession small-cap rally, PowerShares has launched nine U.S. small-cap sector ETFs.
Invesco PowerShares Managing Director and Global Head of ETFs Ben Fulton says the new funds were part of the provider’s effort to expand to become a full-service provider. “It fit well into our business plan, and it was a great complement to the ETF industry,” he says, pointing out that it’s an area the mutual fund industry has overlooked.
PowerShares’ selection of small-cap sector ETFs will be a first for U.S. investors. The ETFs’ holdings have market capitalizations ranging from $250 million to $1.2 billion at the time of their inclusion in their underlying indexes. Each sector-specific benchmark is part of the S&P SmallCap 600 Index, which reflects the U.S. small-cap market.
The new offerings include:
- PowerShares S&P SmallCap Health Care Portfolio (XLVS). The fund will own companies in biotechnology, pharmaceuticals and medical technology, supplies and facilities.
- PowerShares S&P SmallCap Energy Portfolio (XLES)
- PowerShares S&P SmallCap Utilities Portfolio (XLUS)
- PowerShares S&P SmallCap Industrials Portfolio (XLIS)
- PowerShares S&P SmallCap Materials Portfolio (XLBS)
- PowerShares S&P SmallCap Consumer Discretionary Portfolio (XLYS)
- PowerShares S&P SmallCap Consumer Staples Portfolio (XLPS)
- PowerShares S&P SmallCap Information Technology Portfolio (XLKS)
- PowerShares S&P SmallCap Financials Portfolio (XLFS)
Small-caps are well-known for their strength in recoveries. PowerShares found that not only is outperformance typically seen in the first year of a recovery, but it tends to go on for at least another 36 months. “If past recessions and recoveries are any indication, we believe there’s a couple years left in comparison to large-caps,” says Fulton.
Does that mean you should go out and buy all nine funds and sit back? Hardly. Fulton says that since sectors tend to rotate, not all sector funds will perform strongly at the same time. “We believe you’ve got to treat these more like individual stocks, but where you look at sector-based opportunities.”
Max Chen and Heather Hayes contributed to this article.