3 big microcapital ETFs (IWC, FDM, DWAS)

Investing in small-cap stocks, also known as low-priced stocks, requires a higher risk tolerance than investing in small-cap stocks, because the risk increases as the market value decreases. One reason for this higher risk is the scarce trading volume of micro-stocks, which may make it difficult to sell stocks at the required price within a reasonable period of time.

Therefore, price volatility or volatility increases as the market value decreases. Compared with large-cap stocks with low volatility, which have a market value of more than US$10 billion, micro-cap ETFs invest in stocks that are usually worth less than US$300 million.

However, please note that ETFs listed as micro-caps usually do not include 100% micro-cap companies, but also hybrid small-cap companies (valued at more than 600 million). Below, we will look at three micro-market capitalization exchange-traded funds (ETFs) based on assets under management (AUM) that also have a healthy portfolio of stocks in various industries.

  • Investing in micro-stocks, also known as penny stocks, can provide substantial returns, but it also requires a higher degree of risk tolerance.
  • Micro-cap ETFs invest in stocks valued at less than US$300 million, but many also invest in small-cap stocks valued at less than US$600 million.
  • Blackrock Inc.’s iShares Microcap ETF (IWC) is one of the largest microcap ETFs.
  • First Trust Dow Jones Select MicroCap Index Fund (FDM), developed by First Trust Advisors, is a micro-cap ETF that tracks the Dow Jones Select MicroCap Index.
  • Invesco’s DWA SmallCap Momentum ETF (DWAS) tracks the Dorsey Wright SmallCap Technology Leadership Index and holds small and micro-cap stocks.
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iShares Microcap ETF (IWC)

The iShares Micro-Cap ETF (IWC) issued by Blackrock Inc. is one of the largest micro-cap ETFs. As of December 16, 2021, the total net assets of the fund exceeded US$1.2 billion. The IWC ETF uses a market capitalization weighting method to track the performance of the Russell Microcap Index.

The ETF holds 1,749 stocks, which are segmented or weighted according to the following industries:

  • Finance: 22.03%
  • Health Technology: 25.45%
  • Industry: 11.43%
  • Consumer Discretionary: 11.46%
  • Information Technology: 9.89%
  • Energy: 6.03%
  • Real Estate: 4.16%
  • Material: 3.68%
  • Communication: 2.96%
  • Daily consumer goods: 2.03%
  • Utilities: 0.58%

IWC was established on August 12, 2005. As of September 30, 2021, the one-year return rate is 60.63%, the three-year return rate is 12.02%, and the five-year return rate is 14.28%.

The average daily trading volume of the ETF is approximately 64,300 shares, with reasonable liquidity. The expense ratio of IWC is 0.60%, while the average expense ratio of ETF is 0.54%.

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First Trust Dow Jones Select MicroCap Index Fund (FDM)

First Trust Dow Jones Select MicroCap Index Fund (FDM), managed by First Trust Advisors, is a micro-cap ETF that tracks the performance of the Dow Jones Select MicroCap Index.

The rules of Dow Jones Select MicroCap Index assign component weights based on market capitalization, trading volume, and the following financial indicators: tracking price-to-earnings ratio (P/E), tracking price-to-earnings ratio, earnings per share change, operating profit margin in the previous quarter, and six-month total returns.

As of December 17, 2021, the total net assets of the fund exceeded US$172 million. The ETF holds 208 stocks, which are segmented or weighted according to the following industries:

  • Finance: 34.95%
  • Industry: 14.89%
  • Consumer Discretionary: 14.15%
  • Information Technology: 8.91%
  • Healthcare: 7.90%
  • Real estate: 6.33%
  • Material: 4.93%
  • Consumer Staples: 4.22%
  • Energy: 2.39%
  • Communication: 0.69%
  • Utilities: 0.64%

FDM was established on September 27, 2005. As of November 30, 2021, the one-year rate of return is 37.58%, the three-year rate of return is 11.80%, and the five-year rate of return is 9.67%.

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The average daily trading volume of the ETF is approximately 7,184 shares. The expense ratio of FDM is 0.60%, while the average ETF expense ratio is 0.54%.

Invesco DWA SmallCap Momentum ETF (DWAS)

Invesco’s DWA SmallCap Momentum ETF (DWAS) tracks the Dorsey Wright SmallCap Technical Leaders Index, which invests in a mix of small-cap and micro-cap stocks. The reasons for choosing companies are also their relative advantages in terms of share price momentum.

As of December 17, 2021, the total net assets of the fund exceeded US$520 million. The ETF holds 202 stocks, which are segmented or weighted according to the following industries:

  • Consumer Discretionary: 16.24%
  • Healthcare: 15.95%
  • Energy: 15.93%
  • Industry: 13.77%
  • Information technology: 13.18%
  • Finance: 12.72%
  • Material: 5.42%
  • Real estate: 3.18%
  • Communication: 2.47%
  • Utilities: 0.76%
  • Consumer necessities: 0.32%

DWAS was established on July 19, 2012. As of November 30, 2021, the one-year rate of return is 22.03%, the three-year rate of return is 14.22%, and the five-year rate of return is 12.14%.

The average daily trading volume of the ETF is approximately 72,000 shares. The expense ratio of DWAC is 0.60%, while the average ETF expense ratio is 0.32%.

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