Buying The Dip Has Paid Well

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The King of equity ETFs has to be the SPDR S&P 500 ETF, followed by Invesco’s QQQ ETF. They are the two most popular stock ETFs in the market. But if you want exposure strictly to small-cap stocks, there’s only one name: the iShares Russell 2000 ETF (IWM). 

It shouldn’t surprise you that it’s the most searched small-cap ETF by financial pros over the last month. Over the last ten years, it has been down twice, in 2015, it declined -by 4.4%, and in 2018, it declined -by 11.1%. Each of those times, the ETF bounced back the following year. In 2022, it’s down by -23.6%. Will buying the dip work again, and is IWM the best ETF for investors wanting exposure to small-cap stocks?

Buckle up because we’ll answer those questions and more right now.  

iShares Russell 2000 ETF (IWM) invests in publicly traded U.S. small-cap companies. Small-cap stocks are often considered riskier assets but offer the potential for greater returns compared to traditional blue chip stocks. There are 1,974 stocks in IWM, below you’ll find the portfolio characteristics.

• P/E Ratio 11.5x
• Price/Book Ratio 1.7x
• Annualized Volatility (3y) 24.7%
• 12-Month Trailing Yield 1.2%
• Equity Beta (3y) 1.1x

IWM invests across several different sectors, the top two are health care and financials. Below you’ll find the exposure breakdown.

With nearly 2000 stocks in the portfolio, no single stock has a weighting greater than 0.50%. Below you’ll find the top ten holdings in the portfolio.

Investors can find comfort because IWM has been around for over twenty years, and the fund has been trading since May of 2000. 

If you invested $10.000 in the ETF five years ago, it would be worth $11,791. However, over the last ten years, it has been up 132.3%. 

Trading IWM

IWM is one of the most actively traded ETFs, with more than 24 million shares trading daily. Furthermore, it’s optionable, giving traders several ways to play it. The bid/ask spreads for equities and options are highly competitive, meaning traders don’t have to worry about getting bad “fills” on their execution. 

Investing In IWM

IWM offers investors an annual dividend of $2.24 per share or a current yield of 1.32%. The fund charges an ultra-competive expense ratio of 0.19%.

Alternatives To IWM

While IWM is the most popular small-caps ETF, investors wanting exposure to small-caps have many options. They include Vanguard Russell 2000 ETF (VTWO), Schwab U.S. Small-Cap ETF (SCHA), iShares Core S&P Small-Cap ETF (IJR), and iShares MSCI USA Small-Cap Min Vol Factor ETF (SMMV).

VTWO charges an expense ratio of 0.10%, notably lower than IWM. Investors and traders may find it more appealing because it trades at more than half the price of IWM. It even has performed better over the last five and ten years. Furthermore, it has a better dividend yield of 1.51%. 

SCHA charges an even lower expense ratio at 0.04%. It trades below $40 per share and offers a dividend yield of 1.9%. There are 1,759 stocks in the portfolio. Over the last five years, it has delivered returns of 24.1% and 139.9% over the last ten years. 

IJR charges a low expense ratio of 0.06%. It has significantly few assets in its portfolio, with 674 stocks. In addition, at less than $90 per share, IJR is priced materially lower than IWM. It offers investors an annual dividend of 1.91%. Over the last five years, it has returned 29.7% and 166% in the last ten years. 

SMMV charges an expense ratio of 0.20%. At a little over $30 per share, it is significantly priced lower than IWM. It has 293 stocks in its portfolio and is relatively new, it began trading in September 2016. It pays an annual dividend of 1.35% and has returned 48% since its inception.     

Our Opinion 5/10

IWM is considered one of the heavy hitters in the ETF world, it’s right there with SPY and QQQ in terms of popularity. However, you can get a better bang for your buck with lesser-known ETFs and still get exposure to small-cap growth stocks. For example, we like IJR, SCHA, and VTWO as better options based on performance and price.