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5 Small-Cap Sector ETFs Leading the Russell 2000 Rally

Amid inflation fears, Wall Street has been on a smooth ride as the economy is strongly recovering with millions of Americans fully vaccinated and pandemic restrictions being rolled back. While the gains are broad based, small caps are leading the way higher in the latest rally. This is especially true as the Russell 2000 Index is up 6.2% in a month compared to gains of 1.4% for the S&P 400 Mid Cap Index and 1.8% for the S&P 500 Index.

The huge infrastructure package and expanded stimulus are among the major catalysts that are driving the stocks higher. Additionally, the bouts of latest data instilled confidence in economic growth. U.S. manufacturing activity hit a record high in May for the second straight month supported by stronger expansion in output and new orders. Meanwhile, the core personal consumption expenditures index increased by 3.1% in April from a year ago, sharply higher than the March reading of 1.9% and the highest reading since 1992.

The combination of all the factors is leading to pent-up demand, resulting in higher demand for all types of products and services in the economy. As small-cap companies are more domestically tied, these are poised to outperform when the economy improves. These pint-sized stocks generate most of their revenues from the domestic market, making them great choices during an uptrend. A low interest rate also bodes well for small-cap stocks as it pushes up economic activities and results in higher spending, thus boosting the domestically focused companies (read: Small Caps Enjoy Longest Run Since 1995: 5 ETF Winners).

Given this, there have been winners in several corners of the small-cap space. Below we have presented five ETFs from different sectors that have easily crushed the Russell 2000 Index over the past month and are likely to continue their strong performance for the rest of the year.

Invesco S&P SmallCap Energy ETF PSCE – Up 19.6%

This fund provides exposure to the U.S. small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index. It holds 33 stocks in its basket with AUM of $193.3 million. The fund trades in an average daily volume of 749,000 shares and charges 29 bps in fees per year. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 5 Energy ETFs at the Forefront of Oil Rally With More Upside).

Invesco S&P SmallCap Consumer Discretionary ETF PSCD – Up 9.3%

The fund targets the small-cap segment of the broad consumer discretionary space by tracking the S&P SmallCap 600 Capped Consumer Discretionary Index. It holds 90 securities in its basket. The product has attracted $141.7 million in AUM and charges 29 bps in annual fees. It trades in an average daily volume of 20,000 shares and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Amplify Seymour Cannabis ETF CNBS – Up 8%

With AUM of $142.1 million, CNBS is actively managed and invests 80% of its assets in securities of companies with 50% or more of their revenues from the cannabis and hemp ecosystem. The fund holds 33 securities and charges 75 bps in annual fees. It trades in an average daily volume of 124,000 shares.

ALPS Medical Breakthroughs ETF SBIO – Up 6.8%

This fund provides exposure to companies with one or more drugs in phase II or phase III FDA clinical trials by tracking S-Network Medical Breakthroughs Index. It holds 102 securities in its basket. The product charges 50 bps in fees per year from its investors and trades in a moderate average daily volume of about 26,000 shares. It has AUM of $224.9 million in its asset base and carries a Zacks ETF Rank #3 with a High risk outlook (read: Biotech ETFs Surge on Biogen's Alzheimer Drug Approval).

Invesco S&P SmallCap Utilities & Communication Services ETF PSCU – Up 6.1%

This ETF offers exposure to the securities of U.S. utility companies and companies in the communication services sector. It follows the S&P SmallCap 600 Capped Utilities & Communication Services Index, holding 22 stocks in its basket. The fund has accumulated $26.6 million in its asset base while trades in an average daily volume of 3,000 shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.

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Invesco S&P SmallCap Consumer Discretionary ETF (PSCD): ETF Research Reports
 
Invesco S&P SmallCap Energy ETF (PSCE): ETF Research Reports
 
ALPS Medical Breakthroughs ETF (SBIO): ETF Research Reports
 
Invesco S&P SmallCap Utilities & Communication Services ETF (PSCU): ETF Research Reports
 
Amplify Seymour Cannabis ETF (CNBS): ETF Research Reports
 
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Zacks Investment Research
 
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