Big name stocks like Netflix Inc. (Nasdaq: NFLX) and Apple Inc. (Nasdaq: AAPL) often get the headlines, but small-cap tech stocks have logged some impressive gains in 2015.
One of the best ways to profit from them is with a specialized small-cap exchange-traded fund (ETF).
Ambarella Inc. (Nasdaq: AMBA), DexCom Inc. (Nasdaq: DXCM), FireEye Inc. (Nasdaq: FEYE), Tyler Technologies Inc. (NYSE: TYL), and Maximus Inc. (NYSE: MMS) are some of this year's biggest winners. They're up 127.25%, 54.41%, 42%, 27.50%, and 24.82%, in 2015 respectively.
Small-cap stock indexes have also outpaced the broader indexes this year.
The 30-stock blue-chip Dow Jones Industrial Average is down 0.67% since January. The broad-based S&P 500 Index is up 2.34%. The iShares Russel 2000 Index, meanwhile, is comfortably beating both, with a 3.1% year-to-date advance.
Even a looming interest rate increase isn't expected to derail small caps' momentum. That's because the U.S. central bank will only hike interest rates amid solid signs the economy is expanding. And as the U.S. economy continues to grow, especially in relation to the rest of the world, the small-cap Russell is positioned to outperform.
You see, large caps include more slow-growing multinationals. Those companies are likely to plod along in the months ahead. A strengthening U.S. dollar, which makes American-made goods more expensive for customers abroad, will weigh on overseas growth.
"Anything that happens globally, like what happens in Greece, is not going to be reflected in the small caps, which makes them attractive relative to global stocks," Gina Sanchez of Harvest Volatility Advisors said in mid-June on CNBC. "We've also seen significant merger activity in the small-cap market, which is going to put more of a bid into small caps."
But the key attraction of small caps is the potential for explosive growth. That's why we're recommending this small-cap ETF today...
Money Morning Defense & Tech Specialist Michael A. Robinson explains, "The most attractive aspect of a small-cap stock is its potential to show massive returns. One reason is that small-cap firms can grow quickly. After all, a $350 million biotech can double in size in a few years. A $20 billion company cannot."
That's just one reason Robinson believes every tech investor ought to own the iShares 2000 Growth ETF (NYSE Arca: IWO). The ETF is made up of 1,195 select small-cap stocks and provides vast diversification and opportunity.
About 10% of the fund is in micro-caps, allowing for some hefty gains from low priced equities. While the fund is skewed toward healthcare and tech, it avoids huge sector bets, thus minimizing risk.
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"This is a 'twofer' investment," Robinson wrote earlier this month.
"It gives us exposure to not only fast-moving tech small caps, but also small companies in other growth sectors," he said. "Information technology and healthcare, which includes biotech and medical equipment, make up 51% of the fund. Other industries represented include heavy industry, financial services, and consumer discretionary. But make no mistake. Exciting tech leaders form the core of the IWO."
Another allure is IWO's ultra-low 0.25% expense ratio. The average among ETFs is 0.44%, according to Morningstar. They rate IWO as four stars, just one star shy of its highest rating.
IWO is up 9.13% year to date, handily better than the Dow and S&P, down 0.5% and up 2.1%, respectively. IWO's gains since January are even running ahead of the record-breaking Nasdaq Composite, which is up 8.4%.
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