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Best Small Cap ETFs to Buy In 2021

Historically, small-cap ETFs outperform large-cap ETFs, this is why investors tend to tilt their portfolios towards the small-cap stocks and ETFs. They might be a riskier investment, but the prospects of higher returns and growth probability overweight the risks. 

Though the small-cap ETFs are known to outperform the large-cap ETFs by more than 1.5% annually, what are the best small-cap ETFs to buy in 2021 among them? It doesn't matter if you are in a rush or have all the time in the world, we have the 2021 small-cap ETF ground covered, and this guide highlights the best of the lot for your trading.  

What is a small-cap ETF?

Small-cap refers to companies with a market capitalisation of between $300 million and $2 billion. Small-cap companies have a potential for immense growth but at a greater risk, compared to large-cap companies already established in the market. Such characteristics result in stocks that have greater room for movement coupled with high volatility. 

Though known to outperform the broader stock market, the last years witnessed the small-cap sector underperform with a total return of 4.9% compared to the broader market returns of 16.3% as measured by the Russell 2000. Due to the COVID-19 pandemic that had a toll on every aspect of our lives, small-cap companies get to experience the negative effects the most. However, there is light at the end of the tunnel with the roll-out of vaccines globally, and the small-cap companies are tipped to recover fully. 

To reduce the risk element of investing in individual small-cap stocks, investors have a way out in the form of small-cap ETFs, which offer less volatility and greater diversification without losing the potential for high returns.  An ETF, or exchange-traded fund, includes various investment instruments and unlike mutual funds is listed in the stock exchanges. This allows them to be traded throughout the day. The value of the shares making up the ETF also changes throughout the day as shares are bought and sold. 

Invest in small-cap ETFs in 3 Steps

1

Open a Trading Account

Open a trading account with a broker of your choice. Activate your new account through the link sent to your email as filled and deposit money into the new trading account.

2

Choose small-cap ETFs

Decide on whether to invest in small-cap ETFs or trade them via CFDs. You can also do both.

3

Start Trading

Screen the available ETFs trades in line with your investing and trading strategies and open a trade.

Where can I trade small-cap ETFs?

To trade ETFs or invest in them, there are plenty of both traditional broker-dealers and online brokers to choose from, though you probably shouldn’t go to a traditional broker-dealer in the Internet age. Online brokers are the cherry on top for small-cap ETF investing and trading, delivering the markets directly to your device, handheld or otherwise. All you need is an internet connection. 

Below, you can find the table listing our top brokers for small-cap ETFs.

We chose these 3 brokers because they:

  1. Provide the best market research information for informed investment and trading in small-cap ETFs.
  2. Provide seamless trading experience with a wide variety of small-cap ETFs among other investment instruments.
  3. Provide up-to-date fundamental analysis, technical reports, and data to facilitate small-cap ETFs trading.
  4. Are regulated brokers with the required accreditations, which has more importance than ever given the global pandemic and the unprecedented movements on the financial markets.
1
Min. Deposit
$1
Exclusive promotion
Our score
10
0 Commissions and no deposit minimums
Registered with and regulated by SEC and FINRA
Loss of cash protection
Start trading
Pros:
0 Commissions and no deposit minimums
Registered with and regulated by SEC and FINRA
Loss of cash protection
Payment methods
Full regulations list:
2
Min. Deposit
$250
Exclusive promotion
Our score
9.3
CFTC Regulated exchange based in the US
Trade around the clock, how you want, when you want
100% defined risk trades on Forex, Stock Index Futures and Commodities underlying markets
Start trading
Pros:
CFTC Regulated exchange based in the US
Trade around the clock, how you want, when you want
100% defined risk trades on Forex, Stock Index Futures and Commodities underlying markets
Payment methods
ACH, Debit Card, Wire Transfer
Full regulations list:
CFTC
Trading on Nadex involves financial risk and may not be appropriate for all investors.
3
Min. Deposit
$50
Exclusive promotion
Our score
8.7
Access over 220 of the most popular company shares
Trade on spreads from 1 pt on UK shares
Go long or short on global top companies
Start trading
Pros:
Access over 220 of the most popular company shares
Trade on spreads from 1 pt on UK shares
Go long or short on global top companies
Payment methods
Debit Card, Bank Wire, ACH, Credit Card, PayPal
Full regulations list:
NFA, CFTC, FCA, FSA, IIROC, CIMA, FFA Japan, MAS, SFC of Hong Kong
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Best small-cap ETFs to buy now

These are the best small-cap ETFs to buy in 2021, which managed to outperform the broader market despite the COVID-19 pandemic. They can as well be expected to perform well now when things are slowly returning to normal on the back of the vaccine distribution worldwide. 

The Top 10 small-cap ETFs for 2021 are: 

  1. ETFMG Prime Junior Silver ETF [SILJ]
  2. iShares Core S&P Small-Cap ETF [IJR]
  3. Invesco S&P SmallCap Low Volatility ETF (XSLV)
  4. Sprott Junior Gold Miners ETF [SGDJ]
  5. WisdomTree International Small Cap Dividend ETF [DLS] 
  6. iShares Morningstar Small-Cap Growth ETF [JKK]
  7. iShares Russell 2000 ETF [IWM]
  8. Vanguard Small-Cap Value ETF [VBR]
  9. Schwab Fundamental U.S. Small Company Index ETF [FNDA]
  10. Vanguard Small-Cap Growth ETF [VBK]

ETFMG Prime Junior Silver ETF [SILJ]

This exchange-traded fund is made up of companies in the mineral exploration and production industry. With such boosting companies as Pan American Silver Corp, First Majestic Silver Corp, and Hecla Mining included, it is no wonder it showed a growth of 59.8% the last year. This collection of American, Canadian, and British stocks has resulted in an ETF with around $490 million in assets under management.

In times of uncertainty, people tend to invest more in precious metals, and this ETF's performance over the last year during the pandemic confirms this postulate.

iShares Core S&P Small-Cap ETF [IJR]

Despite being a small-cap ETF, the IJR has over $44 billion in assets under management. It is made up of small-cap Wall Street companies. It tracks the S&P small-cap 600 index, which includes the top 600 small-cap companies in the S&P index. Despite the large number of companies making up this fund, it has one of the lowest expense ratios, 0.06% - the reason why the IJR attracts so many investors.

Invesco S&P SmallCap Low Volatility ETF (XSLV)

Some more risk-averse traders are hesitant to invest in the small-cap sector due to its high volatility. The XSLV is created for such investors. It is a fund of handpicked small-cap companies known for their stability in uncertain times. With 120 stable small-cap companies included, this fund boasts $1.6 billion in assets under management. 

Sprott Junior Gold Miners ETF [SGDJ]

This ETF is made up of small-cap companies that produce and explore gold. It chooses companies based on their strong momentum in revenue growth and stock price. Its member companies are primarily from Canada, Australia, and the United States: 88% of these are small-cap, while medium-cap companies are filling the remaining 12%. This collection of small global cap gold companies has resulted in an ETF with around $123 million in assets under management.

As long as gold remains the go-to instrument besides the dollar, this ETF will always have a shot at growth. 

WisdomTree International Small Cap Dividend ETF [DLS] 

The DLS is one of the most expensive ETFs on this list and has an expense ratio of 0.58%. However, in return, it gives traders access to global small-cap companies outside the US market. With a yield of 5.8% last year, double the S&P 500, this ETF is an excellent way to diversify a portfolio.

iShares Morningstar Small-Cap Growth ETF [JKK]

The JKK ETF is made up of small-cap companies with above-average growth on the Morningstar index. The result is a fund worth almost $1 billion in assets under management that recorded a yearly yield of 56.4% in the last 12 months. 

iShares Russell 2000 ETF [IWM]

This ETF gives investors access to the US equity market in the small capitalisation sector by tracking the Russell 2000 index. With net assets under management of approximately $67 billion and an expense ratio of 0.19%, the IWM allows investors to access a broader small-cap market with the potential for yearly yields of over 35%, considering its last year's performance.

Vanguard of Small-Cap value ETF [VBR]

The VBR measures the investment returns of a benchmark index of small capitalisation value stocks: the fund utilises an indexing investment approach. Boasting close to $40 billion in assets under management and an expense ratio of 0.07%, this ETF is popular among investors for being a small-cap value ETF, which regularly outperforms its growth stocks counterparts. 

Schwab Fundamental U.S. Small Company Index ETF [FNDA]

Ranked number 6 on the best passively managed ETFs, no wonder the FNDA has made into this list. It has over $4 billion in assets under management and an expense ratio of 0.25%. 97% of the ETF stocks are US-based with the remaining 3% being stocks from other countries across the globe.

Vanguard Small-Cap Growth ETF [VBK]

Ranked number 5 on the top 20 small-cap growth ETFs, it has close to $37 billion in assets under management and an expense ratio of 0.07%. This ETF is big on tech start-ups and given the adoption of technology over the last 12 months to minimise contact and the spread of COVID-19, this ETF is quite promising for the near future. 

Expert tip on investing in small-Cap ETFs

Always use the chosen broker's screening tools to select ETFs that align with your investment goals and money management rules.

Why trade small-cap ETFs?

Small-cap ETFs offer alternate portfolio diversification and an avenue to access broad markets and industries at reduced risk due to their low expense ratio. Besides, trading and investing in ETFs offers excellent liquidity on a wide range of ETF investment choices at relatively low minimum investment requirements.

Frequently Asked Questions

  1. All of the ETFs mentioned above are the top small-cap ETFs to back in 2021.

  2. Absolutely. As economic activity returns to normal levels, small-cap ETFs are positioned for market movement as small-cap companies market correction occurs.

  3. Anyone can invest in small-cap ETFs.

  4. ETFs are a collection of shares while shares refer to the stocks of a single company.

  5. Exchange-traded funds have many features that make them ideal instruments for beginner investors.

  6. Small-cap refers to companies with a market capitalisation of between $300 million and $2 billion.