Small caps are not performing well this year. iShares Russell 2000 ETF IWM and SPDR S&P 600 Small Cap (NYSE:SLY) ETF SLY are up 9.4% and 7.3%, respectively, compared with the 15.2% gain in the S&P 500 Index. This underperformance was prevalent in the past month as well, a period packed with corporate earnings releases.
The reason could be weak earnings witnessed by the small caps compared with their bigger counterparts.
Q2 Performance: S&P 600 Vs. 500
The second-quarter earnings season is almost drawing to a close with 91.7% of the S&P 600 Index’s total participants having reported so far. Earnings are down 12.2% year over year on 3.5% higher revenues. About 60.8% members’ EPS beat estimates while 58.8% surpassed on top line as the Earnings Trends issued on Aug 22 show.
As many as 10 Zacks sectors of the total 16 saw negative earnings growth, of which six came up with a double-digit slump. Overall, results of the pint-sized stocks have been pretty downbeat compared with the S&P 500 Index.
About 95.4% of the large-cap index already reported earnings growth of 0.5% on 4.7% higher revenues. The S&P 500 Index has so far produced a blended beat ratio of 49.1%.
Better-Performing Small-Cap Sector ETFs
Against this lackluster backdrop, we highlight a few small-cap sector ETFs below that delivered positive earnings or revenue growth and could emerge as hidden jewels.
Consumer Staples — Invesco S&P SmallCap Consumer Staples ETF (PSCC)
The sector is likely to end the second quarter with 6.9% increase in earnings and a 24.5% revenue rise. Plus, investors should note that small-cap stocks are closely tied to the U.S. economy’s well-being. And the country’s consumer confidence is hovering around a 19-year high level, bringing this consumer ETF to the forefront. The fund has lost 2.8% in the past month, narrower than the 4.4% decline in the S&P 500 Index.
Finance — Invesco S&P SmallCap Financials ETF ( (SIX:PSCF) )
Though financial stocks have been under pressure of late, thanks to the plunge in long-term bond yields emanated from the re-escalation in the U.S.-China trade tensions, the financial sector of the S&P 600 Index is expected to exit the second quarter of 2019 on a strong note. Earnings are likely to be 13.2% higher while revenues will likely see a 4.6% uptick. However, investors should be watchful about this fund as it has a Zacks ETF Rank #4 (Sell).
Utilities — Invesco S&P SmallCap Utilities & Communication Services ETF (PSCU)
The sector is likely to record 130.8% earnings growth on 2.2% higher revenues. The fund yields 2.39% annually, much higher than the present benchmark U.S. treasury yield. It has slipped 1.8% in the past month (as of Aug 28, 2019) (read: Tense About Trade War? Follow Goldman With 5 ETF Strategies).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
iShares Russell 2000 ETF (IWM): ETF Research Reports
Invesco S&P SmallCap Utilities & Communication Services ETF (PSCU): ETF Research Reports
Invesco S&P SmallCap Financials ETF (PSCF): ETF Research Reports
Invesco S&P SmallCap Consumer Staples ETF (PSCC): ETF Research Reports
SPDR S&P 600 Small Cap ETF (SLY): ETF Research Reports
Original post
Zacks Investment Research