Capital Group, one of the world’s largest asset managers, announced the launch of its first ETF designed to track U.S. small- and mid-cap stocks—a segment of the ETF market where new fund launches remain relatively rare, according to a Reuters report.
“The U.S. Small- and Mid-Cap ETF by Capital Group opens a new business opportunity. It was the last remaining product the company needed to launch to implement its own model portfolios before the end of the first quarter of 2025,” said Holly Framsted, Head of ETFs at the Los Angeles-based firm.
According to Capital Group data cited in the Reuters report and based on comments from Todd Sohn, ETF strategist at Strategas, of the more than $10 trillion in assets invested in U.S. ETFs, only about $440 billion is currently allocated to small-cap holdings.
“This remains a space within the ETF realm that is full of opportunities,” said Sohn.
Sohn explained that most investors gravitate toward active stock selection when choosing a small-cap fund. This is because indexes like the Russell 2000 include many unprofitable companies, making the index-linked funds less attractive.
However, it has only been five years since the U.S. Securities and Exchange Commission (SEC) opened the door to actively managed ETFs, and small-cap ETFs are still working to catch up.
Managing a small-cap equity ETF also presents unique challenges. Unlike mutual fund managers, no ETF can close its doors to new investors if managers believe the strategy cannot absorb additional capital.
Holly Framsted further explained that one reason Capital Group opted to combine small- and mid-cap stocks in the same ETF was to maximize the team’s ability to handle large inflows effectively.
