Comparing the Micro Cap ETFs (IWC and PZI)

Good article (free registration required) by John Spence of MarketWatch.com comparing the two micro-cap ETFs. Key points:

• The iShares Russell 2000 ETF, ticker IWC, has the more diversified portfolio. It tracks the bottom 1000 stocks by market cap of the Russell 2000 plus the 1000 stocks below that, mimicking the index with a total of 1,250 stocks. In contrast, the PowerShares ETF (ticker: PZI) hold only 334 stocks.
• The iShares ETF is a conventional, passively-managed index fund. In contrast, the PowerShares ETF uses stock selection and rebalancing using non-disclosed rules.
• There are large differences between the two funds in sector allocation. For example, the iShares ETF has 17.5% in healthcare, whereas the PowerShares ETF has only 8.4% in healthcare.
• The average market caps of the stocks in the ETFs is similar: $336 million for the PowerShares ETF, $290 million for the iShares ETF.