3 Small-Cap ETFs With Big Upside Potential

Small-cap stocks and ETFs don’t get as much spotlight as the S&P 500 and Nasdaq Composite. These smaller funds don’t always outperform the broader market, but many of them are filled with hidden gems that can skyrocket at a moment’s notice. Diversifying some of your portfolio into small-cap ETFs can introduce you to higher potential gains if some of the stock picks take off. These three funds are worth monitoring.

Avantis International Small Cap Value ETF

The Avantis International Small Cap Value ETF (NYSEARCA:AVDV | AVDV Price Prediction) offers incredible diversification for most portfolios. Not only does this fund only contain international stocks, but it also limits its holdings to small-cap value stocks. The fund has a 0.36% expense ratio and a 2.84% yield.

AVDV has more than 1,600 stocks and puts less than 10% of its total assets in its top 10 holdings. Seven of those top holdings have more than doubled over the past year, and many of those big winners are connected to gold and other precious metals. More than 20% of the fund’s assets are in the basic materials sector, and another 24.8% of its capital is allocated in the industrials sector. Tech surprisingly sees very little representation and makes up less than 5% of the fund’s total assets.

The Avantis fund has an annualized 15.6% return over the past five years and has surged by more than 60% over the past year. These results demonstrate what is possible if you pick the right small-cap ETF or put some small-cap stocks in your portfolio.

Dimensional U.S. Small Cap ETF

The Dimensional U.S. Small Cap ETF (NYSEARCA:DFAS) aims to maximize returns while minimizing federal income taxes on returns. The fund prioritizes U.S. small-cap stocks and has a 0.27% expense ratio that pairs with a 0.94% yield and an annualized 11.5% return over the past decade. 

DFAS spreads its capital across more than 2,000 stocks. Its top 10 holdings only make up 3% of the fund’s total assets, indicating strong portfolio diversification. Nine of its top 10 holdings are up over the past year, with six of those picks more than doubling during that timeframe. 

Financial and industrial stocks make up almost 40% of the fund’s total assets, with tech, consumer cyclicals, and healthcare each making up more than 10% of its portfolio. Those are the sectors doing the heavy lifting for the fund’s returns.

Schwab Fundamental U.S. Small Cap Company ETF

The Schwab Fundamental U.S. Small Cap Company ETF (NYSEARCA:FNDA) holds more than 800 small-cap stocks and places a strong emphasis on value. Seven of its top 10 holdings are up by more than 100% over the past year, but those 10 picks only make up 5% of the fund’s total assets. 

Just like the other small-cap ETFs, FNDA places a strong focus on industrial stocks, which make up more than 20% of the portfolio. Financials, consumer cyclicals, tech, and real estate are the other sectors that each represent more than 10% of the fund’s total assets. 

Not every stock in the fund performs as well as its top 10 holdings, but FNDA’s portfolio construction has been enough to generate an annualized 11.8% return over the past decade. It comes with a 0.25% expense ratio and a 1.15% yield.