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Portfolio > Economy & Markets > Stocks

Smaller Stocks Holding Up

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This year, there haven’t been many havens for stock investors, but two areas are holding their own: small- and mid-size company stocks.

ETFs following mid- and small- cap stocks have held up better than their larger counterparts. The MidCap SPDRs (MDY) is down just 4.6 percent, and the iShares S&P SmallCap 600 Index Fund (IJR) is off by 4.9 percent. In contrast, the SPDRs S&P 500 ETF (SPY) has declined by 12.8 percent as of July 22.

Mid-cap indexes are generally comprised of companies with market capitalization that ranges from $2 billion to $10 billion. Small-cap indexes include firms with market capitalization that usually falls between $250 million to $2 billion. (A company’s market capitalization is determined by multiplying the number of shares outstanding by one share of a company’s stock price.)

Do your clients own small-company stocks? If their portfolios are badly underperforming this year, it may be because they don’t have enough exposure to small- and mid-cap stocks. By introducing clients to a diversified-index ETF, you can easily plug any missing holes in their portfolios. It could also save you the trouble of researching and selecting individual stocks.

What about cost? ETFs that follow true market indexes in the small- and mid- cap categories generally charge annual expenses of 0.10 to 0.25 percent. Compared to actively managed mutual funds, this represents a huge cost advantage?

Some of the top holdings within the MidCap SPDRs include Arch Coal (ACI), Pioneer Natural Resources (PXD), and Southwestern Energy (SWN). Financials (15.36 percent), business services (11.13 percent) and energy (12.03 percent) account for the largest industry-sector holdings.

Top holdings within the iShares S&P Small Cap 600 Index Fund are Ansys (ANSS), Atwood Oceanics (ATW) and Helix Energy Solutions (HLX). Industrial materials (16.62 percent), financials (15.4 percent) and energy (12.02 percent) make up the bulk of sector holdings.

Another easy way to own small- and mid-cap company stocks is through a total-market index fund like the Vanguard Total Stock Market ETF (VTI), SPDR DJ Wilshire Total Market (TMW) or the iShares Russell 3000 Index Fund (IWV). Each of these funds follows indexes that attempt to replicate the performance of the total U.S. stock market. By design, they include stocks of all market sizes.

Ron DeLegge is the San Diego-based editor of


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