IWM - IJR: Good Small-Cap Index ETF But Better Choices Out There

2024-05-10 15:38:23 ET

Summary

• Small-cap indexes like the Russell 2000 face challenges due to a growing number of unprofitable companies.
• Some funds avoid these issues through profitability screens. Chief among these is iShares Core S&P Small-Cap ETF.
• Although the IJR fund has outperformed since inception and trades with a heavily discounted valuation, some of its peers seem stronger, especially AVUV.

In a recent article , I argued that the Russell 2000 (RTY) and other well-known, small-cap, equity indexes and funds have a problem: too many unprofitable companies dragging down returns. Some small-cap indexes and funds avoid these issues through profitability screens, leading to stronger returns and outperformance relative to the Russell. The largest of these seems to be the iShares Core S&P Small-Cap ETF ( IJR ), which has outperformed the Russell 2000 and the S&P 500 (SP500) since inception and sports a cheap valuation to boot. Due to these issues, I thought to write a quick article on IJR....

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