Pain Not Equal

Another aspect to the recent fall in small-caps is that different funds have been hurt more than others.

For example, in the past month, IJR's nearly 30.5% plummet through Thursday was better than two other small-cap core competitors. The Vanguard Small Cap ETF (NYSEArca: VB) was down 31.72% in that time. And the iShares Russell 2000 Index (NYSEArca: IWM) had slipped 30.84%, according to Morningstar data.

Stepping back and taking a slightly longer-term view shows even bigger performance differences:

• IJR had returned -30.31% in the past three months. For the entire year, it was down 30.03%.

• VB had returned -33.88% in the past three months and lost 37.72% so far in 2008.

• IWM had dropped 31.74% in the past three months. In 2008, it stood at -34.97%.

Wiser Wealth Management's Casey Smith, who serves as the firm's chief investment officer and president, credits such discrepancies to different characteristics of each ETFs' underlying indexes.

He points out that IJR, which has held steadiest over the course of a highly volatile year, has a portfolio with the largest average market-cap size of the trio. Its average stock is listed at around $1.5 billion in cap size, slightly higher than VB's $1.38 billion.

But IWM invests in significantly more smaller-cap stocks, with an average market cap at $851 million.

Smith adds that IJR composition is run by S&P in a different manner than VB's MSCI benchmark and IWM's Russell index.

Instead of depending on a strictly rules-based system, he notes that IJR's names are picked by a committee that can more flexibly evaluate liquidity and other issues. "It's a more active approach to managing a small-cap index," said Smith. "But that seems to be paying off in a sharply correcting market where volatility has been unusually high."

Valuations Now ...                  

... And On 9/30/2008

Source: DJ Wilshire

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