Small-Caps Look To Build On March Steadiness

March was unkind to the S&P 500. The benchmark U.S. equity index lost 2.5 percent last month, with eight of its 11 member sectors finishing the month in the red. That was after a rough February for stocks across the board.

“As the volatility rose, the market went from posting its best January since 1997, up 5.7 percent, to losing 3.7 percent in February, its first monthly loss in 15 months,” S&P Dow Jones Indices said in a recent note.

“February wasn’t only bad for large-caps but for the mid-size and smaller stocks too. As a quick recap for February, 10 of the 11 sectors in the S&P 500 fell; the S&P MidCap 400 lost 4.4 percent, also with 10 sectors down; and the S&P SmallCap 600 lost 3.9 percent with all 11 sectors losing.”

In March, the S&P 500 struggled in large part because its two largest sector weights slumped. Technology and financial services, which combine for almost 40 percent of the index, fell 3.9 percent and 4.3 percent, respectively, last month. Perhaps surprisingly, things were better for smaller stocks.

March Surprises

While the S&P 500 slumped in March, the same cannot be said of its mid- and small-cap counterparts, the S&P MidCap 400 Index and the S&P SmallCap 600 Index.

“While the S&P MidCap 400 gained just 93 basis points, the S&P SmallCap 600 gained over 2 percent that pushed its year-to-date returns into positive territory, up 57 basis points in 2018,” said S&P Dow Jones.

The iShares Core S&P Small-Cap ETF IJR, one of the largest exchange traded funds tracking the S&P SmallCap 600 has large finacial services and technology exposure. Those sectors combine for over 35 percent of IJR's weight.

The SPDR S&P MIDCAP 400 ETF MDY, which holds 400 stocks with market values ranging from $1 billion to $4.5 billion, allocates about 35.3 percent of its combined weight to financial and technology stocks. Those are MDY's two largest sector weights.

Better In March

Last month, only three S&P 500 sectors — energy, real estate and utilities — notched positive returns. Conversely, only two sectors in the S&P MidCap 400 — materials and consumer discretionary — finished lower for the month, according to S&P data. The same goes for the S&P SmallCap 600, as only energy and telecommunications stocks in that index finished lower in March.

In March, investors pulled nearly $666 million from MDY and $81.4 million from IJR.

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