Small Caps Versus Large Caps (ETFs: IWM, IJR, IWC, PZI, SPY, IVV)

J.D. Steinhilber, founder of ETF newsletter and investment management firm Agile Investing, sends a monthly report to clients that discusses asset class valuations and prospects. Here's the section from his most recent letter discussing small cap US stocks versus large caps. Small cap ETFs include IWM and IJR, plus the new micro-cap ETFs IWC and PZI. The most heavily traded large cap ETFs are SPY and IVV:

In the U.S. stock market, we continue to favor large-cap stocks over small-cap stocks. Even though small-caps have more than held their own since we adopted this posture at the outset of 2005, leadership is expected to shift towards large-caps due to attractive relative valuations and a tendency for higher quality stocks to outperform in the later stages of an economic and bull market cycle. Moreover, in the event of a general stock market decline, large-cap stocks present significantly less downside risk than small-caps. Historically, small-cap stocks, because of their higher risk characteristics, have traded at lower price/earnings multiples than those of large-cap stocks. Currently, small-caps (as represented by the S&P SmallCap 600 Index) are trading at a P/E premium of nearly 20% relative to large-caps (as represented by the S&P 500).

Related:

• ETFs mentioned in this article (clicking on a link pulls up articles for the ETF in question): IWM, IJR, IWC, PZI, SPY, IVV.
• Other articles by JD Steinhilber.
• The complete list of funds (and links to articles about them) covered by ETF Investor.

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