Size & Style ETFs Hint At Investor Caution

Looking at specific slices of the market tells us that investors are experiencing deja vu.

Reviewed by: Jessica Ferringer
Edited by: Jessica Ferringer

Looking at large cap and small cap equity performance so far in 2021 is reminiscent of Aesop’s famous fable, “The Hare and the Tortoise.”

While economic optimism led small caps to roar out of the gate in early 2021, large cap equities have taken a slower ascent for the duration of the year.

Since July, the SPDR S&P 500 ETF Trust (SPY) has been performing better than the iShares Russell 2000 ETF (IWM).


Chart courtesy of


IWM has been trading sideways for much of the year. Economic signals have been mixed, and there are signs the market is on edge about the delta variant and the impact this might have on consumer behavior and the overall economy. Small caps would be particularly hard hit by a pullback in the U.S. economy. They are more sensitive to domestic growth than multinational large cap companies.

Sector Differences

By using our ETF Comparison Tool, we can see the differences in sector composition between SPY and IWM.



Chart courtesy of FactSet

(For a larger view, click on the image above)


SPY’s largest sectors are growth-oriented, with technology and consumer cyclicals making up nearly half of the portfolio. IWM’s largest sectors are financials and health care, giving it a more value-oriented, defensive tilt.

It is SPY’s growth tilt that has lifted returns over the past six months. Large cap growth has handily outperformed large cap value, small cap growth and small cap value over that time frame.


Chart Courtesy of


The Vanguard Russell 1000 Growth ETF (VONG) is up 22.0% over the trailing six months, tripling the performance of the Vanguard Russell 1000 Value ETF (VONV). And both the iShares Russell 2000 Growth ETF (IWO) and the iShares Russell 2000 Value ETF (IWN) are slightly negative over the same time frame.

Deja Vu All Over Again

This return to the dominance of growth stocks is reminiscent of spring 2020, when these tech names got a boost from the “stay at home” trade that characterized the markets.

With an unprecedented number of people working from home, technology became more critical than ever in our already-connected world. This was advantageous to the technology sector, spurring the Invesco QQQ Trust (QQQ) to dramatically outperform SPY and IWM last year.


Chart courtesy of


Small cap stocks had been the hardest hit in the market downturn, and lagged SPY and QQQ for much of the year. The performance gap narrowed at the end of the year when vaccine approvals imbued a sense of confidence and optimism into the economy. That optimism was especially beneficial to small cap stocks, bringing IWM’s return above that of SPY in December.

However, delta variant fears have caused markets to experience deja vu. We are now seeing a repeat of last year’s performance narrative. Over the trailing six months, QQQ is up 19.3% versus SPY’s 14.7%. IWM has lost 4.2% over the trailing six months.


Chart courtesy of


The optimism of late 2020 and early 2021, when vaccinations seemed like they would bring an end to the health risks presented by the pandemic, have been tempered by news that the delta variant could cause breakthrough infections.

With differing rates of vaccination across the country and no approval for those under the age of 12, there are signs investors feel like the variant still presents some risk to the economy. (Read: Delta Variant’s Impact on ETFs)

Not All Small Caps The Same

Though much of the outperformance came in the beginning of the year, the quality tilt of the SPDR Portfolio S&P 600 Small Cap ETF (SPSM) has been beneficial. SPSM is outperforming IWM year-to-date by 6.0%.


Chart courtesy of


SPSM’s quality tilt comes from the profitability metric built into the S&P 1500 index construction. For companies to be eligible to be included in the S&P Composite 1500, the sum of the most recent four consecutive quarters’ GAAP earnings must be positive, as well as the most recent quarter.

The S&P SmallCap 600 is a subset of the S&P 1500 index, which also includes the S&P 500 and the S&P MidCap 400.

Though it’s anyone’s guess what lies ahead, these ETFs echoing last year’s narrative is a hint that perceived risk from COVID is still the main factor driving markets.

Contact Jessica Ferringer at [email protected] or follow her on Twitter

Jessica Ferringer, CFA, is a writer and analyst for She has 10 years of experience in investment research and due diligence, including helping to manage ETF portfolios. Jessica has a bachelor’s degree in economics from Lafayette College and an MBA from the University of Pittsburgh.