This is a five-star rating system for ETFs based on their historic performance. Morningstar is a financial firm that provides return ratings for various investment vehicles. There are plenty of companies with small market capitalizations that happily pay dividends to investors when possible, so you’ll want to consider dividend income when choosing a fund to invest in. When you think of dividends, you likely think of blue-chip companies, but those aren’t the only companies that share their profits with investors. Some funds focus on one small-cap-centric stock market index, while others will focus on other small-cap-centric indexes.īefore investing, take the time to get an understanding of what underlying assets the fund is piling its money into. While all small-cap funds focus on investment dollars in the small-cap space, different funds do so in different ways.įor example, some funds focus on international investments while others keep their investments domestic. The vast majority of ETFs have diversification at the center of their strategies, which offers up some protection from risk, but you’ll also want to pay attention to the fund’s asset allocation.
If a fund has generated 15% annualized gains over the past 10 years, you might expect for it to continue outpacing the market, making it a strong investment opportunity. If a fund generated 5% annualized returns over the past 20 years, there would be little reason to expect anything much different this year. Many of the best exchange-traded funds available today are passively managed index funds, which you can expect to cost even less than this. The average ETF expense ratio is 0.44%, according to The Wall Street Journal. After all, you’re in the market to make money, not spend it.ĭue to the power of compound gains in the stock market, what may seem like a small increase in cost can make a drastic difference in your overall returns over time. When looking for the best small-cap funds, there are a few important factors to consider: Expensesįirst and foremost, you’ll want to consider each fund’s expense ratio, which represents the annual cost to invest in the fund.
Each fund follows its own strategy and comes with its own cost structure. Get Priority Access What to Look for in Small-Cap ETFsĪs with any other investment, investment-grade funds aren’t all created equal, even those designed to track the same specific sector of the market. And they’re a lot cooler than Jeff Bezos. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market.
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