This year has been the year of innovation, with artificial intelligence (AI) all the rage. Yet, many advisors are focusing on other investment styles to round out client portfolios.
Year-to-date through August 14, the Invesco QQQ Trust (QQQ) soared 39.5%, and the Global X Artificial Intelligence & Technology ETF (AIQ) climbed 38.8%. Investors embraced large-cap growth stocks like Alphabet, Amazon.com, and Meta Platforms. In contrast, the iShares Russell 2000 ETF (IWM) increased only 10.5%. However, many advisors are focused on more than just past performance success.
During a Nationwide webcast in August, VettaFi asked advisors, “Which style (s) do you believe offer attractive investment opportunities over the next 6-12 months? While innovation/technology garnered 45% of the responses, small caps modestly topped it with 47%. The other choices offered were large caps (39%) and industrials (26%).
Advisors Favor Small Cap ETFs Over Innovation Strategies
iShares Offers Small Cap ETFs With Most Assets, but They Are Different
The Russell 2000 Index is a well-known benchmark for small cap investing. The $55 billion IWM tracks the index and charges a 0.19% expense ratio. The fund’s largest sectors are industrials (17%), financials (16%), health care (15%), information technology (13%), and consumer discretionary (11%). Holdings include Chart Industries, Light Wonder, Option Care Health, Simpson Manufacturing, and Super Micro Computer.
However, the iShares Core S&P SmallCap ETF (IJR) has a higher asset base than IWM. The $72 billion IJR charges a 0.06% expense ratio, a third of the price of IWM. IJR’s largest sectors are financials (17%), industrials (17%), consumer discretionary (14%), information technology (13%), and health care (10%). While the two small cap ETFs have similar sector exposure, none of the above IWM holdings are part of IJR.
