The Best Small-Cap ETF to Buy Now

small cap etfSmall-cap stocks are soaring above the broader market right now, and you can capture those gains now with a small-cap ETF (exchange-traded fund).

Over the last five months, the Russell 2000 has gained 20%. In the same time, the Dow has gained just 9.6%. The S&P 500 is up 10.5% in that time.

And the hot streak isn't over for small cap stocks, according to Money Morning's Small-Cap Investing Specialist Sid Riggs.

He recently saw a major bullish signal in the market that points to even more gains...

This "Golden Cross" Signal Is a Win for Small-Cap Stocks

The signal Riggs recently observed is called a "Golden Cross." It happens when the Russell 2000's 50-day moving average crosses above the 200-day moving average.

The latest Golden Cross occurred on Dec. 19. Since then, the Russell 2000 has gained 5.9% while the Dow has climbed just 2.1%.

And that's just the beginning of the index's run.

Riggs' research shows that investors who "go long" (invest for over 50 days) after a Golden Cross experience an impressive 78.13% winning percentage with an average return of 17.01%.

Many investors, though, have missed out on this run because they think small-cap stocks are too volatile. But a small-cap ETF is a safer way to collect as these stocks keep rising.

To pick a solid small-cap ETF, Riggs tapped into the strongest sectors.

"It's important to make sure you're investing with global must-have trends that provide strong tail wind," Riggs said. "My favorite sectors right now are biotech, cybersecurity, all-flash memory storage, artificial intelligence, and Chinese consumers - all of which either meet a critical demand for the future or are the future."

The biotech sector in particular has been extremely lucrative for investors in 2015. The Nasdaq Biotechnology index is up nearly 21% in 2015. The S&P Biotech Select Industry Index has done even better, up 27%.

Already this year, subscribers to Riggs' Small-Cap Rocket Alert have pocketed gains of 200% on two separate occasions following two explosive biotech companies.

And Riggs now has an investment that gives you a play on the biotech sector as well as the small-cap "Golden Cross" signal he recently spotted...

The Best Small-Cap ETF to Buy Now

The investment is the PowerShares S&P SmallCap Health Care ETF (Nasdaq: PSCH).

PSCH offers exposure to high-profit small cap stocks without the risk of picking just one tech startup.

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"If you're like me, the idea of uncovering the next Apple is very exciting," Riggs said. "But as compelling as a company is, it's critically important to make sure you don't bet the farm on any single company - ever!"

PSCH has 71 stock holdings, all of which are U.S. companies. Over 95% of the fund's holdings are invested in either small-cap or micro-cap firms.

This small-cap ETF's three largest holdings include:

  • West Pharmaceutical Services Inc. (NYSE: WST) manufactures pharmaceutical packaging systems like syringe components and blood collection systems. WST has a market cap of $3.9 billion and the stock has climbed 27% in the last year. WST accounts for 4.56% of PSCH's holdings.
  • Paraxel International Corp. (Nasdaq: PRXL) is a biopharmaceutical outsourcing company that provides contract research, medical marketing, and consulting services. In 2015, PRXL stock has gained more than 26%. PRXL stock comprises 4.16% of the ETF's holdings.
  • Amsurg Corp. (Nasdaq: AMSG) develops and operates ambulatory surgical centers. These centers are used for a variety of high-volume, low-risk surgeries. AMSG stock has gained nearly 37% in the last year, and it accounts for 3.39% of PSCH's holdings.

PCSH is up 15.4% in 2015, and opened March 20 at $69.35 per share. The Dow is up just 1.8% in 2015.

"If you really want to make sure you have your risk management in order, limit your total small-cap allocation to no more than 10% over your overall investable capital," Riggs said.

The Bottom Line: Small cap stocks have doubled the gains of the Dow since October. And the biotech sector is offering one of the best profit opportunities among small caps. A safe but profitable play in this sector is a small-cap ETF, the PowerShares S&P SmallCap Health Care ETF (Nasdaq: PSCH).

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