Going Small With A Technology ETF

Even against the backdrop of a stronger dollar, broadly speaking, small-cap stocks and the relevant exchange traded funds have been disappointments in 2015.

Investors looking for opportunity in the world of small-cap ETFs have been forced to look for “less bad” rather than outright successful. Residing in the less bad category are some small-cap sector ETFs that have outperformed their more diverse counterparts. That group includes the PowerShares S&P SmallCap Information Technology Portfolio PSCT.

An easy way of explaining PSCT is that the ETF is the small-cap equivalent of the Technology Select Sector SPDR XLK. PSCT tracks the S&P SmallCap 600 Capped Information Technology Index, the technology offshoot of the widely followed S&P SmallCap 600 Index.

Companies found in PSCT's underlying index “are principally engaged in the business of providing information technology-related products and services, including computer hardware and software, Internet, electronics and semiconductors and communication technologies,” according to PowerShares, the fourth-larges U.S. ETF sponsor.

Related Link: Tech ETFs Depend Heavily On Apple's Earnings

PSCT, an ETF that is home to 105 stocks with an average market value of almost $1.7 billion, putting it at the higher end of the small-cap spectrum, has recently outperformed broader small-cap benchmarks. For example, PSCT is down 3.1 percent over the past month, compared to a loss of nearly 4 percent for the Russell 2000 and 4.3 percent for the S&P SmallCap 600. Those indexes have technology weightings of 17 percent and 16.1 percent, respectively.

PSCT, which celebrated its fifth anniversary in April, offers investors exposure to seven technology sub-industry groups with the largest being a 25.7 percent allocation to electronic components and electric equipment makers. Semiconductor manufacturers and Internet-related companies combine for another 34.6 percent of PSCT's weight.

What is truly important is that PSCT has outperformed the aforementioned broader small-cap indexes over long holding periods. For example, PSCT has doubled over the past five years, easily outpacing the Russell 2000 and the S&P SmallCap 600 over that span. PSCT's price-to-earnings ratio is 19.6, slightly below that of the S&P SmallCap 600 and slightly above that of the Russell 2000.

Something also notable about PSCT is investors' recent affinity for the fund. Over the past 30 days, investors have poured $94 million into PSCT, a sum that works out to be nearly a quarter of the ETF's current assets under management tally of $363.7 million. That is the top asset-gathering pace over that time of any PowerShares ETF, according to issuer data.