Three small-cap ETFs surface as Russell 2000 sets record

The Russell 2000 closed at a record high on Friday then dropped Monday, according to ETF Trends. The small-cap benchmark has returned 21.83% this year and 15.46% over the last six months. ETF Trends ties the surge to top-heavy concentration risk in the broader market.

The first fund in the trio is the ALPS Medical Breakthroughs ETF (SBIO), which charges 50 basis points to track the S-Network Medical Breakthroughs Index. That benchmark is limited to biotech companies with at least one drug in Phase II or Phase III FDA trials. SBIO is up 30.65% this year.

The VictoryShares Small Cap Free Cash Flow ETF (SFLO) takes a different route: 49 basis points for a proprietary index of 200 small-caps selected for strong free cash flow and growth. The index's operators screen for firms with market capitalizations up to 120% of the largest name in the Russell 2000, a ceiling that keeps the fund in small-cap territory. SFLO has returned 34.7% this year and will mark three years on the market in December.

The cheapest of the three is the iShares U.S. Small Cap Value Factor ETF (SVAL), at 20 basis points. It tracks the equally weighted Russell 2000 Focused Value Select Index, which targets 250 holdings after screening the small-cap universe for value, liquidity, leverage and volatility. The screen excludes the 20% of stocks with the weakest liquidity, the highest leverage and the most volatility. SVAL is up 29.2% this year.

All three funds have beaten the Russell 2000's year-to-date gain, and the group shows how much an index rule changes what an investor owns. SBIO is a clinical-stage biotech bet. SFLO is a cash-flow screen tethered to the Russell 2000's upper edge. SVAL keeps the Russell brand but shifts to equal weight and a value discipline. The fee spread from 20 to 50 basis points is a rough price list for that selectivity.