The 3 Largest Microcap ETFs

Investing in microcap stocks, also called penny stocks, demands a higher degree of risk tolerance than investing in small-cap stocks because risk increases with lower market capitalization. One reason for this higher risk is the thin trading volume for microcap stocks, which can make it difficult to sell shares at the desired price within a reasonable time.

As a result, price fluctuations or volatility increases with lower market capitalization. Microcap ETFs invest in stocks that typically have less than $300 million in value, compared to low-volatility large-cap stocks with market capitalizations in excess of $10 billion.

However, please be aware that ETFs listed as microcap don’t usually contain 100% microcap companies, but instead, also include a mix of small-cap companies (over 600 million in value). Below, we’ll look at three microcap exchange traded funds (ETFs) based on assets under management (AUM) that also have a healthy mix of stocks within the various sectors.

iShares Microcap ETF (IWC)

The iShares Micro-Cap ETF (IWC)—issued by Blackrock Inc.—is one of the largest microcap ETFs. The fund has more than $1.2 billion in total net assets as of December 16, 2021. The IWC ETF tracks the performance of the Russell Microcap Index by using a market capitalization weighting methodology.

The ETF has 1,749 stock holdings, which are broken down or weighted based on the following sectors:

• Finance: 22.03%
• Health Technology: 25.45%
• Industrials: 11.43%
• Consumer Discretionary: 11.46%
• Information Technology: 9.89%
• Energy: 6.03%
• Real Estate: 4.16%
• Materials: 3.68%
• Communications: 2.96%
• Consumer Staples: 2.03%
• Utilities: .58%

The inception date of the IWC was August 12, 2005, and has a one-year return of 60.63%, a three-year return of 12.02%, and a five-year return of 14.28% as of September 30, 2021.

The ETF has an average daily trading volume of approximately 64,300 shares, which provides reasonable liquidity. IWC’s expense ratio is 0.60%, versus the average ETF expense ratio is 0.54%.

First Trust Dow Jones Select MicroCap Index Fund (FDM)

The First Trust Dow Jones Select MicroCap Index Fund (FDM)—managed by First Trust Advisors—is a microcap ETF that tracks the performance of the Dow Jones Select MicroCap Index.

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

The fund has more than $172 million in total net assets as of December 17, 2021. The ETF has 208 stock holdings, which are broken down or weighted based on the following sectors:

• Financials: 34.95%
• Industrials: 14.89%
• Consumer Discretionary: 14.15%
• Information Technology: 8.91%
• Healthcare: 7.90%
• Real Estate: 6.33%
• Materials: 4.93%
• Consumer Staples: 4.22%
• Energy: 2.39%
• Communications: .69%
• Utilities: .64%

The inception date of the FDM was September 27, 2005, and has a one-year return of 37.58%, a three-year return of 11.80%, and a five-year return of 9.67% as of November 30, 2021.

The ETF has an average daily trading volume of approximately 7,184 shares. The FDM’s expense ratio is 0.60%, versus 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 blend of small-cap and microcap equities. Companies are also chosen for their relative strength in stock price momentum.

The fund has more than $520 million in total net assets as of December 17, 2021. The ETF has 202 stock holdings, which are broken down or weighted based on the following sectors:

• Consumer Discretionary: 16.24%
• Healthcare: 15.95%
• Energy: 15.93%
• Industrials: 13.77%
• Information Technology: 13.18%
• Financials: 12.72%
• Materials: 5.42%
• Real Estate: 3.18%
• Communications: 2.47%
• Utilities: .76%
• Consumer Staples: .32%

The inception date of the DWAS was July 19, 2012, and has a one-year return of 22.03%, a three-year return of 14.22%, and a five-year return of 12.14% as of November 30, 2021.

The ETF has an average daily trading volume of approximately 72,000 shares. The DWAC’s expense ratio is 0.60%, versus the average ETF expense ratio is 0.32%.