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iShares U.S. Small Cap Index ETF (CAD-Hedged) (XSU)
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iShares Russell 2000 ETF (IWM)
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iShares S&P U.S. Small-Cap Index ETF (XSMC)
Q: Hello, I asked a question, not long ago, on XSU. Thank you for your answer. Now, I would like you to compare it to XSMC. I know it is way smaller, but the returns have been much better the past 2 and 3 years, 15 to 20% better (I know they don’t follow the same index). This order of magnitude is still surprising to me, unless much of it is a function of the exchange rate fluctuation. I know it is difficult to evaluate, but is this outperformance likely to continue? Is the small size of this ETF a dealbreaker? Thanks.
5i Research Answer:
XSMC is $30M in assets, with 3-year return 11.02% and fees 0.20%. XSU is $457M, 7.36% 3-years, 1.66% 5-years and fees 0.36%. It directly follows the Russell 2000 while XSMC follows a Blackrock model but owns only ishares Core S&P Smallcap ETF. Certainly in the recent past the currency hedge has hurt XSU, but not likely the < four percentage points difference. The Russell 2000 has very small position sizes and this, plus just differences in the indices followed, plus a small difference in fees, likely is the explanation here. We would still be cautious on the small size of XSMC. We might look to IWM and buy the Russell 2000 directly (lower fees, but it does add currency risk).