Small cap stocks generally carry a higher risk however they can also produce sold gains. This means that these stocks will perform worse than the market when there is a downturn. However, in a bull market, these stocks can outperform the broader market. Therefore investors with a higher risk appetite should consider adding small cap stocks in their portfolio. Another way to gain exposure to small cap stocks is through ETFs. Canadian investors can look at these two ETFs to gain exposure to the small cap universe.
iShares S&P/TSX Small Cap Index ETF (TSX: XCS)
The fund seeks to provide long-term capital growth by investing in the Index Shares underlying the S&P/TSX SmallCap Index. The fund’s top holdings include New Gold Inc. (TSX: NGD) and OceanaGold Corporation (TSX: OGC). Year-to-date, XCS has returned more than 5%.
iShares U.S. Small Cap Index ETF (CAD-Hedged) ETF (TSX: XSU)
The fund seeks to track the investment results of an index composed of small cap U.S. equities. XSU’s top holdings include Piedmont Natural Gas Company Inc. (NYSE: PNY), Abiomed Inc. (NASDAQ: ABMD) and Heartland Payment Systems Inc. (NYSE: HPY). Year-to-date, XSU has fallen almost 6%.
