Barrons’s had a nice piece over the weekend on the hidden exposures that may be lurking in your small-cap fund. Bio-tech stocks have been on a tear over the last few years, rising to what can only be described as bubble levels. The bubble is so big that that the Fed even spotted it. Surprising considering their recent track record on bubbles.
But that was over a year ago. Since then, the SPDR Bio-tech index has risen another 50%. So what, you may ask, why should I care about the bubble in small-cap bio-tech stocks if I don’t own a bio-tech fund?
Because your “diversified” small-cap ETF may be loaded with bio-tech. According to Barron’s, bio-tech stocks represent 7% of the iShares Russell 2000 ETF (Symbol: IWM) and an even larger 14% of the iShares Russell 2000 Growth index (Symbol: IWO).
Cap-weighted indices have been a tough bogey to beat over recent years, but they never fail to over-expose your portfolio to every bubble ever inflated in the stock market.
You can read the entire article here (subscription required).