By The ETF Professor
It's really this simple: Risk on = Good news for small-cap stocks and the ETFs that track them.
Risk off and the reverse is true. On a day when the all the major U.S. indexes are up more than 3%, the argument can be made that after this October rally, there isn't much value left out there. Finding small-cap ETFs with the potential for double-digit gains looks kind of difficult.
Limit the search to those funds that can add another 10% or more from here through year-end and investors might start thinking the search isn't even worth their trouble. Actually, the opposite is true. There are several worthwhile options in the land of small-cap ETFs that can easily add another 10% or more by the end of 2011.
(Get more from the ETF Professor here.)
Here are five to consider.
Market Vectors Brazil Small-Cap ETF (NYSE: BRF): A somewhat predictable member of this list, the Market Vectors Brazil Small-Cap ETF was languishing below $37 earlier this month. If investors start seeing value in Brazil and BRF breaks resistance at $50 sometime soon, the ETF could easily find its way back to the high 50s before year-end.
IndexIQ Global Agribusiness Small-Cap ETF (NYSE: CROP): The USDA expects retail food prices to increase between 3.5% and 4.5% this year, the biggest jump since 2008, and a large jump from last year's 0.8% increase. The year over year jump is the sharpest acceleration in the food inflation rate from one year to the next since 1978, according to IndexIQ. CROP could benefit from this trend even more than rival large-cap ETFs. If volume stats to pick up in this new ETF, it could easily reclaim its 52-week high, which is about $3.30 away as of late Thursday.
(Go under the hood with ILF, "the other Mexico ETF," here.)
Global X Mexico Small-Cap ETF (NYSE: MEXS): As we mentioned in our “Under The Hood” segment, MEXS has been in a tailspin since its May 5 debut. With a possible re-embrace of emerging markets by investors and the U.S. economy showing some mettle, MEXS can easily add another 10%. The biggest issue here may not be broader market sentiment. It's volume. MEXS only trades about 620 shares per day. That will need to increase to support a legitimate up move.
PowerShares S&P SmallCap Energy ETF (NASDAQ: PSCE): Trading below $35.60 and less than 1.5% below its 200-day moving average, a combination of mergers and acquisitions potential and the hunt for options beyond the usual energy sector suspects could be the catalysts to tack another $4-$5 onto PSCE before year-end.
WisdomTree SmallCap Dividend ETF (NYSE: DES): The WisdomTree SmallCap Dividend ETF may have the most limited upside of any ETFs on this list after jumping more than 25% in October alone. To tack on another 10% from here, DES needs to not only make a new 52-week high, but clear the psychologically important $50 level as well. The ETF's 3.89% dividend yield will obviously add to your returns. And it's better than bonds or cash.
