There’s an ETF for That? Microcap Stocks

iShares Micro-Cap ETF

IWC

-1.79%

IWC tracks roughly 1,300 companies through the Russell Microcap Index, giving it broad exposure to the smallest publicly traded U.S. stocks.

As you’d expect, that comes with a fair amount of volatility. The ETF has a three-year beta of 1.41 and a three-year standard deviation of 21.39%, both well above the broader market.

Sector exposure also reflects the nature of the microcap universe. Healthcare makes up about 29% of the portfolio, largely driven by speculative biotech names.

Financials are another meaningful slice, often made up of regional banks, alongside a decent allocation to information technology, including companies tied to emerging areas like crypto and AI. Industrials round things out, which is typical for smaller companies with manufacturing and niche business lines.

Outside of that, the fund is fairly straightforward. It does what it’s supposed to do: track its benchmark. Over the past 10 years, it has delivered a 10.16% annualized return versus 10.36% for the index, which is a respectable outcome even after accounting for its relatively high 0.60% expense ratio.

Where things get a bit tougher is liquidity. Microcap stocks are less frequently traded, and that carries through to the ETF itself. IWC has a 0.39% 30-day median bid-ask spread, which is on the wider side and something to keep in mind if you’re trading in and out.

Dimensional U.S. Micro Cap ETF

DFMC

DFMC takes a different approach. While the ETF itself only launched in March 2026, it is an ETF share class of the Dimensional U.S. Micro Cap Portfolio, which dates back to December 1981.

That gives it a much longer track record to lean on. Over the past 10 years, the mutual fund version has delivered a 10.69% annualized return compared to 9.88% for the Russell 2000 Index.

Like many Dimensional strategies, it’s actively managed, but not in a way that leads to high turnover. The portfolio turns over at just 7% annually, which helps keep costs and tax drag in check.

Sector exposures are broadly similar, with overweight positions in financials, healthcare, and industrials, though DFMC leans more heavily into industrials compared to IWC.

The key difference versus IWC is in how the portfolio is constructed. While both target the size factor, DFMC layers in additional screens, particularly around profitability, along with other characteristics commonly used in factor investing.

The idea is that size works better when combined with other quality filters, rather than owning the entire microcap universe indiscriminately. Despite being active, DFMC is also cheaper, with a 0.41% net expense ratio.

Please note that this article reflects the author’s personal views and does not represent the opinions of the publication or its affiliates. It is for informational purposes only and does not constitute investment advice. It is essential to seek guidance from a registered financial professional before making any investment decisions.