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Best Small-Cap ETFs to Buy in 2021

Historically, small-cap exchange-traded funds (ETFs) have outperformed large-cap ETFs, so some investors tilt their portfolios toward small-cap stocks and ETFs. These investors think that the prospects of higher returns and growth will outweigh the risks. 

In this guide, we look at the best small-cap ETFs to buy in 2021.

Where Can I Trade Small-Cap ETFs?

To trade or invest in ETFs, there are plenty of traditional broker-dealers and online brokers to choose from. These days, it’s best to go with an online broker, and we’ve found some of the best ones for trading small-cap ETFs, based on criteria including the trading experience, regulatory status, and provision of information.

1
Min. Deposit
$50
Exclusive promotion
Our score
10
Trade/invest in stocks with just $50
Invest for dividends and get payout on stocks on Ex-Dividend day
Over 11 payment methods, including PayPal
Start Trading
Pros:
Trade/invest in stocks with just $50
Invest for dividends and get payout on stocks on Ex-Dividend day
Over 11 payment methods, including PayPal
Payment Methods
Bank Transfer, Wire Transfer
Full regulations list:
CySEC, FCA
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro. Your capital is at risk.
2
Min. Deposit
$1
Exclusive promotion
Our score
9.3
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:

What is a Small-Cap ETF?

Small-cap refers to companies with a market capitalization of between $300 million and $2 billion. These companies have high growth potential (but at greater risk) compared to large-cap companies that are already established in the market.

Though known to outperform the broader stock market, recent years saw 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 market index. Small-cap companies suffered the most during the COVID-19 pandemic, but the continuing rollout of vaccines provides some hope that small-cap companies can fully recover.

To reduce the risk element of investing in individual small-cap stocks, investors can instead invest in small-cap ETFs, which — as baskets of small-cap stocks — provide less volatility and greater diversification while still retaining the potential for high returns. Unlike mutual funds, ETFs are listed on the stock exchanges and can therefore be traded throughout the day.

Invest in Small-Cap ETFs in 3 Steps

1

Open a Trading Account

The first thing to do is to open an account with an online broker. Pay attention to commissions and look out for hidden charges like interest on margins (the borrowed money) or service fees for withdrawals. Also, take note of trading limits and minimum account balances.

2

Choose Small-Cap ETFs

Your broker’s online platform will display a list of the ETFs (including small-cap ETFs) that you can buy, and some platforms will let you filter the list to find ETFs from a particular provider or with low fees.

3

Start Trading

When you’ve found the ETF you want, you can buy it from the broker in the same way that you would buy a stock: at a quoted price during market hours or at a maximum price by placing a limit order inside or outside of market hours.

Best Small-Cap ETFs to Buy Now

We have looked for the best small-cap ETFs to buy in 2021, to benefit from the return to normal that the national and international vaccination programmes should bring:

  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]

1. ETFMG Prime Junior Silver ETF [SILJ]

The SILJ ETF tracks companies in the mineral exploration and production industry. At the time of writing, the $490 million assets under management (AUM) include American, Canadian, and British stocks such as Pan American Silver Corp, First Majestic Silver Corp, and Hecla Mining included. In times of uncertainty, people tend to invest more in precious metals, so this ETF performed well during the pandemic.

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

Despite being a small-cap ETF, IJR has over $44 billion in assets under management at the time of writing. It tracks the S&P 600 small-cap index, which includes the top 600 small-cap companies in America’s S&P index. Despite the large number of companies making up this fund, it has one of the lowest expense ratios of 0.06%.

3. Invesco S&P SmallCap Low Volatility ETF (XSLV)

Some risk-averse traders may be 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. 

4. Sprott Junior Gold Miners ETF [SGDJ]

This ETF is made up of small-cap companies that mine for gold. It includes companies from Canada, Australia, and the United States based on their strong momentum in revenue growth and stock price. 88% of these companies are small-cap, while medium-cap companies complete the remaining 12%. This collection of small-cap global gold companies amounts to around $123 million AUM. As long as gold remains the go-to safe-haven investment, this ETF should hold its value.

5. WisdomTree International Small Cap Dividend ETF [DLS]

DLS is one of the most expensive ETFs on this list and it has an expense ratio of 0.58%. In return, it gives traders access to global small-cap companies outside the US market. This ETF is an excellent way to diversify a portfolio.

Expert Tip on Investing in Small-Cap ETFs

Although ETFs are less risky than individual stocks, you can reduce your risk even more by setting a “stop order” to get you out of your investment and limit your loss if the ETF price falls by a certain amount.
- Alice Wanjiku

Why Trade Small-Cap ETFs?

Small-cap ETFs offer portfolio diversification and a route to accessing broad markets and industries at reduced risk with low expense ratios. ETFs also offer excellent liquidity, so you should have no trouble selling them when you want to take your profit or limit your loss.

Frequently Asked Questions

  1. Just as an ETF provides diversification across several stocks, there is nothing to stop you from diversifying even further by buying several ETFs. While there is no definitive number one (and it can change over time) our top ten list gives you a few to choose from.

  2. As economic activity returns to normal levels, small-cap companies and the ETFs that contain them should benefit.

  3. Anyone with a brokerage account that allows investing in ETFs can invest in small-cap ETFs, although not all brokers will make all ETFs available to buy.

  4. ETFs are collections of company stocks whereas shares refer to the stocks of a single company. In a sense, you have shares in all the companies within the ETF when you buy shares in the ETF.

  5. Exchange-traded funds benefit beginners by being diversified (containing several stocks) so that no single stock can wipe out your investment if it goes bust. ETFs are also easy to trade, just like company stocks.

  6. Small-cap refers to companies with a market capitalization of between $300 million and $2 billion. The size of the ETF — its assets under management (AUM) — is the total of its shareholdings in the constituent companies.

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