Microcap ETFs and Mutual Funds as investment opportunities
Here at The Bowser Report, we only deal in individual stocks. However, many individual investors are interested in funds and they might not know exactly what they're getting into. So, we'll break down two popular funds--ETFs and Mutual Funds--but with our usual microcap twist.
The Basics: What are ETFs and Mutual Funds?
Both are investment vehicles, but they have their differences. An Exchange-Traded Fund (ETF) begins with assets--stocks, bonds, commodities, etc--which are then lumped together and traded on a stock exchange. Because they are traded on an exchange, ETFs perform much like stocks, fluctuating throughout the day.
Mutual Funds on the other hand begin with funding, which is then used to purchase assets--stocks, bonds, commodities, etc. The mutual fund then owns various assets, which it can sell or buy more of in attempts to increase the value of the fund.
Are there really microcap ETFs and Mutual Funds?
The answer to that question is yes, and there are quite a few. Microcap ETFs include:
- First Trust Dow Jones Select MicroCap ETF (FDM);
- iShares Russell Microcap (TM) Index Fund (IWC); and
- PowerShares Zacks Microcap ETF (PZI)
The largest of the three listed above is the iShares Russell Microcap Index Fund with $460.6 million in assets. IWC is followed by First Trust Dow Jones Select ETF with $41.3 million in assets. The PowerShares Zacks Microcap ETF is the smallest listed above with just $24.2 million in assets. The variation in total assets is quite large, but all are relatively small considering that the SPDR S&P 500 ETF (SPY) has $123 billion in assets.
There are also quite a few microcap mutual funds for those investors who enjoy the risk of small stocks, but want someone to manage what stocks are bought:
- Franklin MicroCap Value A (FRMCX);
- Royce Micro-Cap Investment (RYOTX); and
- Perritt MicroCap Opportunities (PRCGX)
Like the microcap ETFs, these funds range in size. They vary from PRCGX with $302.5 million in assets to FRMCX with $360.3 million to RYOTX with $974.0 million. These examples represent larger asset holdings than the ETFs, but are still tiny next to a fund like the PIMCO Total Return Fund (PTTRX) with $285 billion in total assets.
How microcap ETFs and Mutual Funds perform?
Below are two charts that compare the above microcap ETFs and Mutual Funds to the S&P 500 over the past 5 years. The results are clearly varied with mixed performances on both charts. The S&P 500 is represented by the black line, while the various ETFs and Mutual Funds are represented by the various colored lines.
Microcap ETF performance over the past 5 years
Microcap Mutual Funds performance over the past 5 years
While we here at The Bowser Report don't deal with funds, we feel that it is necessary for each individual investor to at least understand what makes them work. Having a well-diversified portfolio of Bowser stocks can perform better than a fund, and the best part is you are your own fund manager.
The Bowser Report is a monthly financial newsletter that specializes in small stocks trading for $3/share or less. Our goal is to provide the individual investor with relevant information on microcap stocks. Each month, we recommend a new company, provide information on past recommendations and report news surrounding the microcap marketplace.
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Information in this blog post contains references to past Bowser recommendations. This blog post contains no recommendations, and instead relies on data gathered on past recommendations from sources thought to be reliable.
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