A Host of Small Cap Options to Choose from for ETF Investors

At the beginning of 2007, Financially Fit brought you a series of articles on small-cap investing. We covered the advantages (on Jan. 16, 2007), the analysis (Jan. 23, 2007) and how to choose the best small-cap funds and exchange-traded funds (ETFs) (Jan. 30, 2007). 

ETFs have seen unparalleled growth in the last few years, but especially in 2007, and that includes the small-cap category. 

Depending on the index, the definition of small-cap stocks varies, but most analysts consider small caps to be companies whose market capitalizations range from $300 million and $2 billion. Until 2007, small caps were on a five-year tear, outperforming many of their larger brethren. But last year, according to Lipper, small-cap stocks returned an average of only 1.4%. 
The reason for this rout was primarily the subprime mess, when small companies suddenly had a difficult time finding credit and investors flocked to more stable, large-cap blue-chip stocks.  

However, there are a couple of reasons why investors should not turn up their noses at this niche: 

Small caps provide extra diversification to your portfolio, while offering the potential to push returns higher in good markets.
 

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