iShares S&P/TSX SmallCap ETF (XCS.TO)

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

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.

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.

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.

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

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.

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).

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.

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.

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.

(A Top Pick Dec 18/13. Up 4.4%.) This is a short term play that he’ll stick with for the next couple of months. Small caps tend to move pretty good in the first 2 or 3 months of the year. There is some real value that has been emerging in this index.

(Top Pick Nov 5/13, Up 6.32%) There is a small cap effect that happens each spring and summer. Bullish for a 3-5 year hold. Hold for a few months as a Top Pick. Small caps tend to move in the first few months of the year. Those that sell off for tax loss selling tend to have a bounce.

Filled with an interesting group of industrials and small caps that are leading the charge in the market.

Chart shows a long downtrend from 2011 that has been broken. A little bit of a base has started to form from mid-2012. He loves that when the downtrend is broken and there are starting to be some up ticks, plus the Comparative Relative Strength Index (RSI-T) versus the TSX has been arcing up. Small caps are just now starting to outperform the big leaders that are starting to roll over.

If you believe this is a bull market, which he does, and if you believe that we are well into the bull, as he does, then what comes on really strong are the small caps. This one is rich in small Canadian companies.