Claymore announced last week the introduction of a new ETF providing exposure to the smallest of the small cap domestic equities. The Wilshire Micro Cap ETF (WMCR) will seek to replicate the Wilshire US Micro-Cap Index, a benchmark consisting of approximately 1,600 micro cap stocks. The weighted average market capitalization of the underlying index is just over $160 million.
Previously, WMCR was known as the Claymore/Sabrient Stealth ETF (STH), a product that sought to replicate the Sabrient Stealth Index. That benchmark consisted of stocks that were “flying under the radar” of Wall Street analysts–those that had little or no analyst coverage. Given that objective, STH had a heavy tilt towards small cap stocks, but also contained moderate exposure to mid caps and large caps. WMCR will follow a rules-based index consisting of the issues ranked below 2,500 by market capitalization of the Wilshire 5000 Total Market Index, making it a “pure play” on micro cap equities.
WMCR becomes the fourth ETF in Claymore’s suite of Wilshire ETFs, joining the Wilshire 5000 Total market ETF (WFVK), Wilshire 4500 Completion ETF (WXSP), and Wilshire US REIT ETF (WREI). “Through our exclusive partnership with Wilshire and our ETF suite, investors now have solutions for both the core and satellite portions of their portfolios that combine the most meaningful features and benefits of ETFs,” said Steven A. Baffico, senior managing director and Head of U.S. Retail Distribution for Claymore Securities, Inc. “Claymore’s new Wilshire Micro-Cap ETF is tied to an index that offers an unbiased and more complete picture of the micro-cap market.”
WMCR will compete with a handful of existing ETFs offering exposure to micro cap stocks, including:
- PowerShares Zacks Micro Cap Portfolio (PZI)
- iShares Russell Micro Cap Index Fund (IWC)
- First Trust Dow Jones Select Micro Cap Fund (FDM)
With about 1,600 securities, WMCR will be the broadest of these micro cap ETFs. IWC includes about 1,400 individual stocks, while PZI and FDM come in around 400 and 250, respectively.
Most investors spread their domestic equity exposure across large, mid, and small cap stocks in order to gain potential diversification benefits and enhance overall returns. But the U.S. stock market doesn’t stop with the Russell 3000; there are more than 9,000 publicly-traded companies currently available to U.S. investors, including thousands of “micro caps.” Micro cap companies generally maintain market capitalizations ranging from $50 million to $300 million and trade on the NASDAQ or pink sheets, as opposed to the more prestigious NYSE.
Micro caps offer potential for tremendous returns, as companies that fall into this group tend to maintain relatively new operations. But these securities are also inherently risky; the likelihood of bankruptcy or delisting is significantly higher among micro caps than any other group of stocks.
Disclosure: No positions at time of writing.