MicroCap Reality, MicroCap Theory

The average investor doesn’t spend a lot of time thinking about small up-n-coming companies known as “microcaps.” Simply put, if you’ve never heard of the company, there may be a great deal of risk investing in it.

But what if you can diversify your risk through the use of exchange-traded index funds? It turns out, there are quite a few ETF alternatives than trying to pick tiny tots on your own.

Currently, there are three choices for a microcap ETFs: The PowerShares Zacks Microcap Portfolio (PZI), the First Trust Dow Jones Select Microcap (FDM), and the iShares Russell Microcap (IWC). And while each invests in microcaps through hunique indexes in different ways (e.g., liquidity, market cap, risk-reward, etc.), they track one another in a near identical fashion.

It follows that if you are going to look into microcap investing, IWC would be your preferred choice because it has the greatest volume. Microcaps may be too risky or too rich for your tastes, but if you are going to take part, then you need to use the vehicle with the easiest entry and exit capability (e.g., greatest volume).

Disclosure statement: Some of Pacific Park’s investment clients may hold positions in any of the investments mentioned above.

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