Small-Cap Exchange-Traded Funds Outperform the DJIA and S&P 500

Small companies with less than $1 to $2 billion market capitalization (number of outstanding shares times price) offer investors rapid earnings growth and potential price appreciation. But these small-cap stocks can be quite volatile, particularly in a down market.

Since 2003 small-cap stocks have outperformed large-cap stocks included in the Dow Jones industrial average (^DJI) and the S&P 500 (^GSPC). For example, the iShares S&P SmallCap 600 Index Fund (IJR), an exchange-traded fund (ETF) that tracks the Standard & Poor's SmallCap 600 Index has moved from 28.09 on March 12, 2003
to 68.19 on March 21, 2007, a 142.76 percent increase. For the same period the DJIA was up 64.82 percent and the S&P 500 increased 78.45 percent.