Are ETFs Inflating Small-Cap Stock Prices?

 |  Includes: DTN, IJR, IWM, JKJ, PXSG, PXSV, SLYV, VB
by: Tom Lydon
Joe Morris of Ignites writes that small-cap exchange traded funds have been in existence long enough for the market to digest their flows. However, some investors think intense buying by hedge funds and private equity firms, in addition to the popularity of ETFs, could be unevenly inflating small company stock prices.

The Wall Street Journal reports some of the small-cap stock gains don't reflect the health of the company. The price-to-earnings ratio is already skewed because they're already too pricey. The original WSJ article mentions every dollar invested in smaller companies represents a bigger percentage of its market size.

Editor's note: ETFs covering U.S. smallcaps include iShares S&P Small Cap 600 (NYSEARCA:IJR), iShares Russell 2000 (NYSEARCA:IWM), Vanguard Small Cap ETF (NYSEARCA:VB), streetTRACKS Dow Jones U.S. Small Cap Value (DSV), PowerShares Dynamic Small Cap Growth (PWT), iShares Morningstar Small Core (NYSEARCA:JKJ), PowerShares Dynamic Small Cap Value (PWY), PowerShares Zacks Small Cap Portfolio (PZJ), and WisdomTree SmallCap Dividend Fund (NYSEARCA:DTN).