Small & Microcap ETFs Make Big Moves

We explain what’s driving the moves into this small corner of the market.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

The smaller the stock, the bigger the gains. That’s been a prevailing theme of 2021, with investors embracing risk wholeheartedly, sending shares of small companies to dizzying heights during the first six weeks of the year.

Headlining the massive returns is the $68 billion iShares Russell 2000 ETF (IWM), which has surged 16.5% in the year-to-date period through Feb. 9. That’s nearly four times the return of the large cap S&P 500, which is up 4.3% in the time frame.

Now, 16.5% would be an impressive return for any full year, let alone just a six-week period. And just to be clear, this year’s rally didn’t start from a low level—the Russell 2000 ended 2020 at an all-time high after jumping 20% in the year of COVID.

The gains on top of already-hefty gains have pushed the small cap index into the stratosphere, with the Russell now trading a whopping 40% above its 200-day moving average—the biggest gap in the four-decade history of the index.

Russell 2000 Trades 40% Above Its 200 DMA


The Smaller The Better

Small caps are known for being riskier and more volatile than their larger counterparts, and in 2021 so far, that risk has paid off in the form of handsome rewards.

But for some investors, that hasn’t been enough. They’ve gravitated toward even smaller companies—microcaps—which are stocks of the tiniest companies on the market. How tiny are we talking about? The median market cap of a Russell 2000 stock is $922 million, while the median market cap of a Russell Microcap stock is $282 million.

These tiny stocks have been on an absolute tear this year. The $1.2 billion iShares Micro-Cap ETF (IWC) is up 29.3% year-to-date, leaving the ETF around 55% above its 200-day moving average.

YTD Returns

Momentum Trade

The parabolic moves in small and microcap stocks this year are stunning, but perhaps not a total surprise in the context of the current market environment. From GameStop to Hertz to Signal Advance, many small stocks have skyrocketed for no fundamental reason over the past several months.

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

These moves go hand in hand with the flood of retail traders entering the market through commission-free brokerages like Robinhood, Webull and others. Many of these traders have been piling into the most volatile stocks; in many cases, those are the stocks held in small and microcap ETFs.

Retail traders may not be the sole reason for the ascent in small cap stocks. There are fundamental factors that can be pointed to in explaining the rally. Low rates, fiscal/monetary stimulus and a growing supply of COVID vaccines are some of the most cited explanations.

But these factors were already well-known at the start of the year, suggesting that momentum rather than new fundamental developments is more likely the driver of this year’s rise in small and microcaps.

Small Caps Balloon

Interestingly, some of the stocks within the aforementioned IWM and IWC have rallied so much that they can hardly be considered small or microcap stocks anymore.

For instance, IWC’s No. 1 holding, FuelCell Energy, has a $9 billion market cap, making it larger than some stocks in the S&P 500. The ETF’s other top holdings—such as Digital Turbine, Magnite, and Sorrento Therapeutics—also have multibillion-dollar valuations, far above what would traditionally be considered microcap territory.

The same goes for IWM. The small cap ETF’s top holding is Plug Power, with a $34 billion market cap. Novavax, Penn National Gaming and Caesars Entertainment follow, each with market capitalizations in excess of $16 billion.

By comparison, Campbell Soup and Cboe Global Markets, two S&P 500 constituents, have market values of $14 billion and $10 billion, respectively.

These aberrations are due to a highly unusual market environment in which certain stocks have climbed so rapidly in such a short period of time that the indices have been unable to adjust. Case in point: Since the start of the year, FuelCell has tripled. Over the past three months, the stock is up more than 10x.

That’s not a typo. Over the past three months, the stock has risen 1,050%, an astronomical move that is seldom seen in normal years, but one that hardly raises an eyebrow in today’s manic market.

FCEL Market Cap

Can these rapid advances continue at their current pace? Probably not, history suggests. But for now, investors in small and microcap ETFs can flex their strong returns.

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2

Sumit Roy is the senior ETF analyst for, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for, with a particular focus on stock and bond exchange-traded funds.

He is the host of’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays,’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.