Smaller ETFs Packing A Big Punch

by: Tom Lydon

Some of the best things come in small packages. Exchange traded fund investors can find great momentum picks among products with lower assets under management, but you also have to be aware of the potential risks.

So far this year, 33 of the 50 best performing ETFs are funds that started 2013 with less than $100 million in assets under management, reports Eric Balchunas for Bloomberg. The smaller ETFs attracted $1.2 billion in new assets this year while the 17 larger ETFs saw $3.8 billion in inflows.

Potential investors, though, should be aware that smaller funds come with some risks, such as wider bid/ask spreads - price on buy or sell orders may be spread out. Still, investors can take better control over trades through limit orders, instead of a market order, when executing a trade on any ETF.

Moreover, smaller ETFs may not garner enough traction, forcing the fund sponsor to shutter the offering. If the ETF closes, investors are notified within at least 30 days in advance. Investors can then sell the ETF or hold on until the day of liquidation and receive a cash equivalent to assets at the time of sale.

Balchunas points out several small ETFs that have gained over 30% and crossed over the $100 million in assets marker year-to-date.

  • Guggenheim Spin-Off ETF (NYSEARCA:CSD). The ETF tracks corporate spinoffs, or new businesses/divisions created from a parent company, in their growth phase between six months and thirty months after spinning off. Consequently, CSD tilts toward small- and mid-cap stocks. The fund has ballooned to $280 million in assets from $67 million. CSD is up 31.4% year-to-date.
  • PowerShares Dynamic Media Portfolio (NYSEARCA:PBS). The ETF follows media companies like Time Warner, CBS, LinkedIn and Yahoo, and weights offerings based on fundamentals, like earnings and price momentum. Assets have increased to $226 million from $86 million. PBS is up 34.0% year-to-date.
  • DB X-Trackers MSCI Japan Hedged Equity Fund (NYSEARCA:DBJP). This ETF provides investors with access to Japanese equities while hedging against a depreciating yen currency. Assets have surged to $157 million from $5 million. DBJP is up 30.5% year-to-date.
  • PowerShares DWA SmallCap Technical Leaders Portfolio (NASDAQ:DWAS). The fund follows 200 small-cap stocks selected based on their relative performance strength. This enhanced indexing strategy has outperformed the Russell 2000 by 10% in the last year. Assets have increased to $302 million from $13 million. DWAS is up 34.2% year-to-date.
  • iShares U.S. Insurance ETF (NYSEARCA:IAK). Insurance companies have been outperforming the broader financial sector so far this year, and the rising interest rate environment could help boost insurance revenue. Assets rose to $152 million from $81 million. IAK is up 29.5% year-to-date.

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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