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Best Small-Cap ETFs for Q4 2021

Small-cap exchange-traded funds (ETFs) are designed to invest in a basket of stocks with relatively small market capitalizations. A small-cap company is generally one whose market value is somewhere between $300 million and $2 billion. However, small-cap ETFs are not necessarily restricted to that range, as evidenced by some of the holdings of the ETFs outlined below. Because of their size, small-cap stocks have strong, albeit often volatile, growth potential. A small-cap ETF can reduce the volatility associated with individual stocks while offering investors greater diversification.

Key Takeaways

  • The small-cap sector outperformed the broader market over the past year.
  • The small-cap ETFs with the best one-year trailing total return are CNBS, XSVM, and AVUV.
  • The top holdings of these ETFs are Tilray Inc., Group 1 Automotive Inc., and AutoNation Inc., respectively.

There are 47 distinct small-cap ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The small-cap sector, as measured by the Russell 2000 Index, has outperformed the broader market over the past 12 months, with a total return of 46.1% compared to the S&P 500’s total return of 36.2%, as of Aug. 5, 2021. The best-performing small-cap ETF, based on performance over the past year, is the Amplify Seymour Cannabis ETF (CNBS). We examine the top three best small-cap ETFs below. All numbers are as of Aug. 6, 2021.

  • Performance over One-Year: 91.8%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: 0.44%
  • Three-Month Average Daily Volume: 86,269
  • Assets Under Management: $131.6 million
  • Inception Date: July 23, 2019
  • Issuer: Amplify Investments

CNBS is an actively managed ETF that provides exposure to the cannabis industry. The fund invests at least 80% of its assets in securities of companies that generate 50% or more of their revenue from the cannabis and hemp ecosystem. The majority of the fund’s holdings operate in the cultivation and retail, and agricultural technology sectors of the cannabis market, and are based in either the U.S. or Canada. However, investing and finance companies also represent a large share of the fund’s portfolio and the ETF does invest a small percentage of its assets in companies based in Ireland and Israel.

CNBS follows a blended strategy, investing in a mix of growth and value stocks of mostly mid- and small-cap companies. The fund’s top three holdings are Tilray Inc. (TLRY), a Canada-based supplier of medical cannabis products; Canopy Growth Corp. (CGC), a Canada-based medical marijuana producer; and WM Technology Inc. (MAPS), a technology and software infrastructure company serving the cannabis industry.

  • Performance over One-Year: 88.7%
  • Expense Ratio: 0.39%
  • Annual Dividend Yield: 0.78%
  • Three-Month Average Daily Volume: 132,626
  • Assets Under Management: $294.6 million
  • Inception Date: March 3, 2005
  • Issuer: Invesco

XSVM invests at least 90% of its total assets in the securities that comprise the S&P 600 High Momentum Value Index, which includes 120 securities in the S&P SmallCap 600 Index displaying strong value and momentum characteristics. The fund focuses on buying U.S. small-cap equities that are both relatively undervalued and exhibit strong momentum. Its largest sector allocation is in financials, followed by consumer discretionary and industrials.

XSVM’s top three holdings are Group 1 Automotive Inc. (GPI), an automotive retailer providing dealership and collision center services; StoneX Group Inc. (SNEX), a financial services company; and Rayonier Advanced Materials Inc. (RYAM), a chemical company specializing in cellulose-based products.

  • Performance over One-Year: 73.2%
  • Expense Ratio: 0.25%
  • Annual Dividend Yield: 1.21%
  • Three-Month Average Daily Volume: 167,782
  • Assets Under Management: $1.4 billion
  • Inception Date: Sept. 24, 2019
  • Issuer: American Century Investments

AVUV is an actively managed fund that invests in U.S. small-cap companies with low valuations and higher profitability ratios. The fund holds a broadly diverse portfolio of more than 600 stocks, with no single holding accounting for more than 1% of total assets invested. The sector receiving the largest portion of invested assets is financials, followed by consumer discretionary and industrials. Together, these three sectors account for nearly two-thirds of the AVUV portfolio.

The top holdings of this fund are AutoNation Inc. (AN), an automotive retailer and service provider; Alcoa Corp. (AA), an industrial producer of aluminum; and Cimarex Energy Co. (XEC), a hydrocarbon energy exploration and development company.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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