Best Long-Term Performance U.S. Small Cap Growth ETFs

Are you an aggressive growth investor? If so, you may want to consider investing in a U.S. Small Cap Growth ETF. Small cap growth equities are generally considered one of the most aggressive equity asset classes available. But, with over 1900 ETFs available, how do you find one with a great long-term track record. Fortunately, there are only 9 US Small Cap Growth ETFs listed at etfdb.com and only 7 of them are 10 years old or older.  Long-term performance is the #1 thing I look at when selecting an asset to invest in. Here is the list of ETFs I’ll be comparing:

Before comparing these ETFs head-to-head, I want to know how the US Small Cap Growth asset class has performed versus the US Large Cap Blend asset class (S&P 500). (PLEASE CLICK ON THE CHARTS TO ENLARGE THEM)

As you can see in the chart above, small cap growth has trailed large cap blend by 0.42% CAGR (compounded annual growth rate). While this underperformance isn’t exactly a great selling point, small cap growth does have a 0.90 correlation coefficient to the broad U.S. Market.  Also, this chart represents 45 years of market history. As you’ll see later in this article, small cap growth has had some periods of significant outperformance.

Now, let’s take a look at how the oldest small cap growth ETF, the iShares S&P Small-Cap 600 Growth ETF (IJT : $IJT), has done versus the S&P 500 over the last 17 years.

Now we’re cooking with gas folks. The last 17 years have been pretty challenging for large cap blend investors. On the other hand, small cap growth has treated investors phenomenally. IJT has outperformed the S&P 500 by an astounding 4.07% CAGR from August 2000 to July 2017.

I compared all 7 of the ETFs listed above head-to-head and 3 came out on top. The following chart is the comparison of just those 3.

While all 3 of these ETFs performed well, there is only a 0.39% difference between the best performing ETF and the 3rd best. The reason they track so closely during this 11 year period, is they are tracking the same index, the S&P Small-Cap 600 Growth index. Each of these 3 ETFs has their own methodology for rebalancing and reconstituting their funds. Each has slightly different expense ratios and dividend payouts. With the given similarity of funds, I believe investors who want to own a Small Cap Growth fund in their portfolio will do well with IJT, SLYG or RZG.

As a long-term buy and mostly-hold investor, I usually give preferential treatment to older ETFs. I have a few reasons for this. First of all, I want to know how these ETFs performed during a market crash, such as what happened during 2007-2009. Also, many new ETFs are introduced each year. While some of these new ETFs may outperform some of the older ETFs, I don’t know which ones will, and I don’t want to experiment with new products when investing. Additionally, newer ETFs don’t provide me with very long historical charts. And I like charts. In the above charts, you saw that the top 3 ETFs in the Small Cap Growth asset class have basically marched in lockstep with each other. But, what if we go back a little further. Let’s compare IJT and SLYG all the way back to 2000.

If you look at the chart above, you may begin to see why I like to backtest asset classes as far back as I can. I cannot tell you what happened to SLYG to make it underperform IJT so miserably, but I can speculate. It is possible that SLYG was once tracking a different index, such as the Russell 2000. Or, it could be that SLYG had a much higher expense ratio. I don’t know, but whatever change they made, it was significant. I don’t believe going forward from today that there will be a significant difference in returns between IJT, SLYG or RZG, but my fund of choice in this category is IJT.

Even if IJT looks like a great fund to own, I won’t put my money to work in it without doing some due diligence. You should do this too. Here are links to the IJT fact sheet,  the IJT prospectus, and the IJT summary prospectus. Additionally, I always check the ETF Deathwatch List prior to investing in an ETF.  I’ve reviewed the items above and I’m satisfied with what I’ve read. Here are few key facts about the iShares S&P Small-Cap 600 Growth ETF (IJT) as of August 24, 2017:

  • Expense ratio: 0.25%
  • Benchmark index: S&P SmallCap 600(R) Growth Index
  • 20-Day average volume: 59k shares/day
  • Number of holdings: 352
  • P/E ratio: 26.09
  • P/B ratio: 2
  • Yield: 0.87%

With the statistics above, you may be wondering why a Deep Value ETF Accumulator would want to own such a fund. Nothing screams value here. In fact, if you are going to invest in a small cap growth fund, I would recommend waiting for a full blown correction to buy-in. As of August 25, 2017, small cap growth is only experiencing a small dip of -5.46% from all-time-high prices. All these facts concern me a bit, but I have cash to deploy and I have found that the cash drag on my portfolio is worse than investing at the ‘wrong’ time. I cannot time the market; so I don’t try.

Full disclosure: I am not a financial advisor. I am an individual investor with a connection to the internet. This article is simply my due diligence put on display for anybody who wants to read it. I highly recommend that you do your own due diligence before investing in any fund mentioned in this article or my website. I intend to start a position in IJT within the next 72 hours. 8/27/17

I want to thank you for taking time to read this article. Please share it with others. Also, if you have any questions or comments, please put them in the comment block below.

Respectfully yours, The Deep Value ETF Accumulator, aka Micah McDonald

Thank you to https://www.portfoliovisualizer.com/ for the backtesting tools.

 

 

 

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