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Solid Small-Cap Earnings Put Spotlight on These Sector ETFs

Sanghamitra Saha
Updated
The Macerich Company (MAC) opens Scottsdale Fashion Square's refurbished luxury wing. The face-lift enables the mall to add an impressive tenant lineup to its roster.

Small-cap stocks have been on a tear of late on a slew of tailwinds. A fast-growing U.S. economy (compared with several other developed countries), a stronger greenback, a hawkish Fed and geopolitical tensions are favoring domestically-focused pint-sized stocks.

The Russell 2000 has already hit an all-time high this month. The small-cap index S&P 600 gained 7.3% in the past three months (as of May 17, 2018) versus 0.1% of the S&P 500. Against this backdrop, the question that arises is will the rally in small caps continue?

For that we need to dig deeper into the earnings scorecard of the S&P 600 and understand the inherent strength of this capitalization (read: Best Small-Cap ETFs of 2017 with Huge Upside in 2018).

Inside Q1 Earnings Outperformance

The Q1 earnings season is almost at its end with 88.5% of the S&P 600 index having reported so far. Earnings are up 21.4% year over year on 9.7% revenue growth, with 60.5% beating EPS estimates and 72.2% surpassing top-line expectations, per the Earnings Trends issued on May 17. Plus, revenue surprises are especially tracking above historical periods. For Q2, total S&P 600 earnings are expected to rise 18.2% on 9.8% higher revenues.

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Transportation – SPDR S&P Transportation ETF XTN

As many as 87.5% companies of the S&P 500 index have released numbers so far. Total earnings for the transportation sector are up 42.4% on 15% higher revenues with a blended beat of 85.7%. 

The fund has about 61% focus on smaller cap transportation stocks followed by 35% mid caps and 22% large cap.

Construction – PowerShares Dynamic Building & Const ETF PKB

Around 90.5% of the companies have reported earrings as of now. Earnings and revenues for the construction sector are up 56.3% and 17.3%, respectively, while the beat ratio is 52.6%.

The fund has about 48% exposure to small-cap construction stocks, followed by 37% mid caps and 15% large caps.

Consumer Staples – PowerShares S&P SmallCap Consumer Staples ETF PSCC

About 81.8%% of the companies have reported results, recording Q1 earnings growth of 54.9% and revenue expansion of 10%. The blended beat ratio is 44.4%.

This underlying index of the fund, which is a subset of the S&P SmallCap 600 Index, gives exposure to common stocks of U.S. consumer staples companies that are principally engaged in businesses providing consumer goods & services that have non-cyclical characteristics, including tobacco, textiles, food and beverage & non-discretionary retail.

Industrial Production – PowerShares S&P SmallCap Industrials ETF PSCI

A solid 95.5% of the companies posted earrings. Earnings and revenues for the construction sector are up 22.8% and 13.9%, respectively, while the beat ratio is 50% (read: Why These Sector ETFs Are Winning Picks Now).

The underlying index looks to track small-cap stocks from businesses providing industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace and defense and general manufacturing.

Basic Materials – PowerShares S&P SmallCap Materials ETF PSCM

Almost 96.6% of the companies have released Q1 figures so far. Earnings growth has been recorded at 29%, while revenue growth is 12.8%. The blended beat ratio is 39.3%.

The underlying index of the fund is designed to measure the overall performance of small-cap U.S. stocks engaged in businesses of producing raw materials, including paper or wood products, chemicals, construction materials, and mining and metals.

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PWRSH-DYN BLDG (PKB): ETF Research Reports
 
SPDR-SP TRANSPT (XTN): ETF Research Reports
 
PWRSH-SP SC MAT (PSCM): ETF Research Reports
 
PWRSH-SP SC C S (PSCC): ETF Research Reports
 
PWRSH-SP SC IND (PSCI): ETF Research Reports
 
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