The SPDR Portfolio S&P 600 Small Cap ETF (SPSM) tracks an index of small cap U.S. stocks. The investment thesis behind a small cap investment is the growth factor that comes along with these securities. While mega-cap firms have already hit their peak, smaller companies may be the next juggernaut. The downside to small-cap investing is additional risk. Changes in regulation, credit availability, or product viability could send share prices plummeting. While some exposure to these small companies is healthy for a portfolio, the allocation should be kept relatively low since this market segment experiences extreme volatility. Investors in total-market ETFs already have some allocation to small-caps and should make sure that they’re not unintentionally overweighting a risky space. Conversely, investors with strong convictions about small-caps might want to augment a total market fund with SPSM to boost their exposure. Like all of State Streets’s SPDR Portfolio lineup, SPSM is priced to match or beat rivals like the iShares Core S&P Small Cap ETF (IJR). SPSM has changed its underlying index a couple of times in recent years, but as of January 2020 it tracks the same S&P SmallCap 600 index as IJR and at a lower fee, making it an appealing option for longer-term investors who are looking for growth and aware of the risks that come with small-cap stocks. SPSM still lags IJR in assets though and some short-term traders might prefer IJR’s size and liquidity.
State Street launched its ultra-low-cost SPDR Portfolio lineup in October 2017 after years of losing market share to cheaper rivals at BlackRock, Schwab, and Vanguard. This was a humiliating setback since State Street pretty much founded the modern ETF market in 1993 with the launch of the SPDR S&P 500 ETF Trust (SPY). State Street was late to the ultra-low-cost space — BlackRock launched its low-cost iShares Core series five years earlier — but has pushed hard to make up ground. Many of its “Portfolio” funds, including SPSM, were renamed and repriced for this purpose. Prior to October 2017, SPSM tracked the Russell 2000 index and traded under the ticker TWOK. Prior to January 24, 2020, it tracked the SSgA Small Cap Index.