This Microcap ETF is Outperforming the S&P by a Wide Margin

With great risk comes great reward. Microcap stocks, considered by many to be the most volatile of all securities, are a great example of this. In 2021, ETFs in this sector have outperformed the S&P 500. In most cases, I’m seeing a 2% to 3% difference in year-to-date returns. Compare the two ETFs below as an example of this:

  • SPDR Portfolio S&P 500 ETF (SPLG): Up 17.30% YTD
  • iShares Microcap ETF (IWC): Up 19.35% YTD

Nothing too exciting there, right? Global instability has caused many investors to focus on domestic equities, several of which fall in the microcap category ($50 million to $300 million market cap). Buyers are aware of the volatility factor (sometimes) and have chosen to take the risk locally rather than gamble on overseas markets. Now look at this:

  • AdvisorShares Dorsey Wright Microcap ETF (DWMC): Up 26.68% YTD

Must be an anomaly, right? I stretched my analysis back to a one-year timeframe. The numbers going back to the end of Q3 last year are even more staggering. DWMC is up a whopping 71.03% in the past twelve months. SPLG, which tracks the S&P 500, gained just 32.34%. The Vanguard Small-Cap Index Fund ETF (VB), came in with a gain of 43.78%.

Riding the Wave: Microcap Investing for Q4

Obviously, I’m buying DWMC, and not just for the historical performance numbers. When it comes to microcaps, I look at them as investing in the future. I already own IWC and First Trust’s FDM Microcap ETF, which is up 52.63% over the past twelve months. They’ve been fueling my portfolio growth for several years now.

Buy the ETFs and ride the wave. If you’re looking for individual microcap equities, check out Koss Corporation (KOSS). The Milwaukee-based headphones manufacturer has been around since 1958 and is the company credited for inventing high-fidelity stereo headphones. Their share price on January 1st was $3.19. It opened this morning at $17.21.

Another microcap company worth looking at is Comstock Mining (LODE). They’ve been on my watch list for a while as a “green energy” gold mining company and they’ve doubled their share prices since January. Earlier this month, they acquired Plain Sight Innovations (PSI), a developer of biographyte, a biomass-derived crystalline graphite for carbon neutral batteries.

Comstock is a gamble. I’m buying in anyway. They are a domestic company based in Virginia City, Nevada, that’s been around since 1999. Their opening price of $2.79 this morning may seem low when compared to previous highs, but they are now in control of several patents from PSI that could be critical for EV battery innovations. Share prices will go up.

Evergrande Selloff Opens the Door for New Chinese Investments

Some market analysts are blaming this morning’s 2% slide on the S&P to the potential debt default of Evergrande (HKG), China’s second largest property developer. With $305 billion in liabilities and an interest payment of $83.5 million due on Thursday, investors are jumping ship. Beijing might bail them out, but it’s appearing less likely as we inch closer to the deadline.

Though I focus mainly on domestic equities, I do agree that having some global diversity is important, so I’m going to add one last microcap recommendation here. Recon Technology (RCON), currently trading at $2.70, is primed to be a mover in Q4. My day trader friends should recognize the name because the chart patterns have provided multiple hits since 2016.

Recon Technology develops automated oilfield equipment for petroleum extraction in the shale fields of China. In other words, they make fracking equipment. In the US, that doesn’t fall in the “clean energy” category, but Chinese reliance on coal burning plants has flooded the country with toxic pollutants. Solar and wind won’t replace those. Fracking oil just might.

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About the Author

This Microcap ETF is Outperforming the S&P by a Wide Margin

Kevin Flynn

Kevin D. Flynn is InvestorsPrism's Editor-Financial Markets. A former financial professional and founder of AdvisorScale Financial Writing, Kevin lives in Leominster, Massachusetts with his wife Evelyn, two cats, and nine wonderful grandchildren.