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Should Invesco S&P SmallCap Momentum ETF (XSMO) Be on Your Investing Radar?

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Launched on 03/03/2005, the Invesco S&P SmallCap Momentum ETF (XSMO - Free Report) is a passively managed exchange traded fund designed to provide a broad exposure to the Small Cap Growth segment of the US equity market.

The fund is sponsored by Invesco. It has amassed assets over $1.18 billion, making it one of the larger ETFs attempting to match the Small Cap Growth segment of the US equity market.

Why Small Cap Growth

Sitting at a market capitalization below $2 billion, small cap companies tend to be high-potential stocks compared to its large and mid cap counterparts, but come with higher risk.

While growth stocks do boast higher than average sales and earnings growth rates, and they are expected to grow faster than the wider market, investors should note these kinds of stocks have higher valuations. Further, growth stocks have a higher level of volatility associated with them. Compared to value stocks, growth stocks are a safer bet in a strong bull market, but don't perform as strongly in almost all other financial environments.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.39%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.47%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Industrials sector--about 30.70% of the portfolio. Information Technology and Consumer Discretionary round out the top three.

Looking at individual holdings, Mueller Industries Inc (MLI - Free Report) accounts for about 2.55% of total assets, followed by Boise Cascade Co (BCC - Free Report) and Insight Enterprises Inc (NSIT - Free Report) .

The top 10 holdings account for about 22.13% of total assets under management.

Performance and Risk

XSMO seeks to match the performance of the S&P SMALLCAP 600 MOMENTUM INDEX before fees and expenses. The S&P Smallcap 600 Momentum Index is composed of securities with strong growth characteristics selected from the Russell 2000 Index.

The ETF has added roughly 12.78% so far this year and is up about 30.75% in the last one year (as of 08/20/2024). In the past 52-week period, it has traded between $45.31 and $67.14.

The ETF has a beta of 1.05 and standard deviation of 22.91% for the trailing three-year period. With about 115 holdings, it effectively diversifies company-specific risk.

Alternatives

Invesco S&P SmallCap Momentum ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XSMO is a reasonable option for those seeking exposure to the Style Box - Small Cap Growth area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 2000 Growth ETF (IWO - Free Report) and the Vanguard Small-Cap Growth ETF (VBK - Free Report) track a similar index. While iShares Russell 2000 Growth ETF has $11.56 billion in assets, Vanguard Small-Cap Growth ETF has $17.42 billion. IWO has an expense ratio of 0.24% and VBK charges 0.07%.

Bottom-Line

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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