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A Small-Cap Sector ETF That's Working

March 20, 2017: 12:33 PM ET

Small-cap stocks are lagging their larger peers to start 2017, but there are some corners of the small-cap that are outpacing broader small stock benchmarks. The popular Russell 2000 Index and the S&P SmallCap 600 Index up an average of 2.2 percent year-to-date, but investors could be doing better with more tactical, sector plays.

For example, the PowerShares S&P SmallCap Information Technology Portfolio (NASDAQ: PSCT) is higher by 5.5 percent year-to-date. PSCT debuted nearly seven years ago and is seen as the small-cap competitor to the widely followed Technology Select Sector SPDR (NYSE: XLK), the largest technology exchange-traded fund by assets.

PSCT follows the S&P SmallCap 600 Capped Information Technology Index, which is the technology offshoot of the widely followed S&P SmallCap 600.

Although it is small-caps ETF tracking a sector that often trades at above average valuations, PSCT's price-to-earnings ratio of just over 23 is not alarmingly high. PSCT's price-to-book ratio is 2.64.

Based on AltaVista's 2017 estimates, XLK should carry a price-to-earnings ratio of 17.9, just under the P/E of 18 the research firm has on the S&P 500. While that doesn't necessarily qualify as a “deep discount,” only XLK's financial services and healthcare counterparts are less expensive.

PSCT's underlying index holds companies “engaged in the business of providing information technology-related products and services, including computer hardware and software, Internet, electronics and semiconductors and communication technologies,” according to PowerShares.

Nearly 29 percent of PSCT's lineup is allocated to electronic equipment and components makers with another 19.1 percent devoted to software companies. Semiconductor and IT services providers combine for over 31 percent of the ETF's weight. The ETF holds 88 stocks, almost 52 percent of which are considered small-cap growth names. Nearly a third of PSCT's lineup are considered small-cap blend names.

Since coming to market, PSCT has topped the S&P SmallCap 600 Index by about 240 basis points, according to PowerShares data.

Investors have recently displayed some enthusiasm for PSCT. In September, the ETF had $481 million in assets under management, a number that has since jumped to $622 million. In just the past week, PSCT has seen inflows of nearly $55 million.

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Index Last Change % Change
Dow 20,596.72 -59.86 -0.29%
Nasdaq 5,828.74 11.05 0.19%
S&P 500 2,343.98 -1.98 -0.08%
Treasuries 2.40 -0.02 -0.74%
Data as of 12:42am ET
Company Price Change % Change
Bank of America Corp... 23.12 0.05 0.22%
Micron Technology In... 28.43 1.96 7.40%
Advanced Micro Devic... 13.70 -0.09 -0.65%
Ford Motor Co 11.62 -0.05 -0.43%
Chesapeake Energy Co... 5.22 0.13 2.55%
Data as of Mar 24

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