Keith Richards iShares S&P/TSX SmallCap ETF XCS-T TOP PICK Jan 28, 2014

In terms of small caps, he really doesn’t own any but that doesn’t mean you shouldn’t. There is always greater volatility with small cap stocks. If you can stomach the ride than by all means do it. He would certainly make sure that you have some of the larger caps as well.

The ETF is junior mining and oil companies and a lot of junior resources in general. When the risk is on, and those sectors are hot, then these small caps tend to outperform dramatically. He doesn’t think we are there yet. The US ones have done well, but those are consumers, industrials and smaller manufacturing companies.

He owns this in very aggressive accounts. He likes it because it is dominated by energy and materials (mining). Feels there will be action on the M&A front. Small caps in Canada are actually where managers do very well.

This has smaller companies and a reasonable dividend yield. Thinks the fees are fairly high on this, but nothing wrong with it. It gives you a little bit of extra torque. He would rather be playing the US market on something like that, so you could look at iShares Russell 2000 (IWM-N).

As a fund manager, he believes you should go with a fund rather than an ETF. Fund managers can be more nimble. If you own a small-cap index, they can change quite a bit in regards to what they are holding, so you can be caught holding sectors/stocks that you don’t want.

Well diversified. All the small cap sectors are in it. No active management and he feels you could look for that instead.

If the bond market is right that the economy is starting to get traction, then small caps ought to outperform, if you can stand the volatility. This is probably a pretty good time to get into them. You would be better off in an IWM-N kind of ETF.

The timing is excellent. Small cap stocks tend to bottom at the end of November because they are under the most pressure at this time of year. They are the most likely to recover after tax loss selling.

This holds a bunch of small cap stocks, a lot of which are going to be energy and materials. He would not be too keen on jumping in right here.

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The closet to an ETF that covers the S&P/TSX Venture Composite. This index has outperformed other indexes in the last couple months. Offers high growth for a long term hold. Unlock Premium - Try 5i Free