iShares Core S&P Small Cap ETF (IJR) + SIA's Top 25 U.S. Small Cap ETFs & Stocks
The large-cap markets in both the US and Canada have recently become more stagnant, making it challenging to achieve substantial returns. Previously, stocks like Eli Lilly and Nvidia offered impressive gains. However, this trend shifted over the summer. There has been not only a sector rotation but also a notable shift in asset classes. Stealthily, small and mid-cap stocks have gained momentum. In an earlier Equity Leaders Weekly publication (July 25, 2024) around a quarter ago, we hinted at this shift, and today, we will explore it in greater depth. In the past quarter, the large cap S&P 100 Index is up 1.79%, which pales in comparison to the 8.32% gain in the S&P Small Cap market, as measured by the iShares S&P Small Cap ETF (IJR). In fact, it's challenging to find any US Small Cap ETF that hasn't produced a double-digit return year-to-date. While it may seem like the bulk of the gains are already behind us, it's essential to contextualize these returns within the three-year performance figures, which remain in single-digit territory.
iShares Core S&P Small Cap ETF (IJR)
Let’s take a closer look at the iShares Core S&P Small Cap ETF (IJR). This ETF has been an underperformer over the past four years, yielding almost no returns overall. During this period, it moved sideways as attention remained focused on a select group of large-cap stocks. However, while the spotlight was on these giants, investments quietly flowed into the small-cap space, boosting early leaders.Recent market activity is now reflecting this shift, evident in the broad-based holdings like ETFs and mutual funds. The accompanying Point and Figure (P&F) chart illustrates this nicely. Note the green shaded box that previously served as resistance and now functions as support. The consolidation triangle that defined this price discovery period shows how advisors and portfolio managers sought deeper value away from a red-hot large-cap market. This triangle has now broken to the upside, forming a bullish pattern on top of a four-year consolidation band, indicating a potential continuation of the small-cap rally.A move above resistance at $118.95 would signal a bullish trend toward upper resistance levels at $128.81 and $134.04, based on measured vertical counts from the consolidation band. Support is solid at $108.76-$109.85, with further backing on the positive trend line at $101.45 (the $100 whole number). With an SIA SMAX score of 6 out of a best score of 10, the toggle has switched to green, indicating outperformance relative to other asset classes.
U.S. Equity Small Cap ETF & S&P 600 Equity Index(TOP 25 FAVORED LIST)
To better equip SIA practitioners, we've sifted through the SIA Matrix Reports and curated a list of 25 ETFs representing compelling portfolio ideas for capitalizing on this small-cap movement, along with 25 top relative strength stocks for managers seeking specific stock exposure.First, let's examine the S&P 500 and NASDAQ 100 indexes (see red box), which have displayed lackluster performance over the past quarter, returning 3.20% and -1.20%, respectively. This is notably lower than any of the ETFs on our top 25 list, all of which have posted substantial gains with three-month returns ranging from 5% to 13%, most clustering around 9%.One intriguing option is the Pacer US Small Cap Cash Cows ETF (CALF), which applies a fundamental screen to identify small-cap companies with substantial free cash flow. This aligns with our methodology of ensuring quality through fundamental analysis while sorting for the best technical opportunities.For those willing to dig deeper, the SIA S&P 600 Index Report is an excellent resource for identifying leading individual stocks. Here, advisors can focus on standout opportunities rather than settling for average performance. Among our top picks is Powell Industries (POWL), ranked #1, a manufacturer of integrated and packaged solutions for electrical power distribution in commercial and industrial markets. In the #6 position, Carpenter Technologies (CRS) is a recognized leader in high-performance specialty alloy-based materials for critical applications. Additionally, Hawkins Inc. (HWKN), ranked #14, excels as a formulator, manufacturer, and distributor of industrial and laboratory chemicals.Review the highlighted one-month returns and compare them to three-year numbers to gauge how far these equities have come. While some have rebounded to their previous highs, many are still climbing their own walls of worry.If you have any questions about these reports or would like to discuss further, please reach out to your SIA agents. We can review our findings and guide you on accessing these reports on the SIA platform.
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