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By Scott Burns | 03-30-2010 04:11 PM

Sector ETF Investing With a Small-Cap Twist

Despite the runup of small-cap shares, PowerShares' Ben Fulton thinks opportunity remains for investors.

Scott Burns: Sector ETF investing with a small-cap twist. Hi there. I'm Scott Burns, director of ETF research with Morningstar. Joining me today is Ben Fulton, who runs the PowerShares Group. Ben, thanks for joining me.

Ben Fulton: Thanks, Scott.

Burns: So you guys are coming out with a very interesting new lineup of small-cap sector ETFs. One way people can think about these is they're like the baby SPDRs. Everyone knows the financial sector SPDR, and the energy sector SPDR, but this is a small cap version. Talk a little bit about where the cut-offs are for small cap. What's in these funds, and what can investors expect?

Fulton: We're real excited. We're working with S&P. It was S&P that created the SPDR family of products. We've worked with the S&P 600, which is their small cap index.

Burns: So just for our readers that aren't as familiar, there's the S&P 500, and that's with the sector SPDRs, which are distributed by the ALPS Group. Those are the sectors of the 500. And then there's the middle group.

Fulton: The mid cap S&P 400.

Burns: And the smallest group would be the S&P 600.

Fulton: Right. The S&P 600 are smaller companies. It's amazing. In the economy that we've just gone through, there are a lot of names that are familiar to people, names that you recognize and are used to.

Burns: We were joking on the team: AIG, Freddie, Fannie. If GM were actually still a tradable company, they'd be there.

Fulton: Yeah. Most of the restaurants you eat at on weekends are there. There's a lot financials, technology, healthcare. It's a very representative index. We're really excited about this timing.

Typically, coming out of a recession, you want to look for investment opportunities in the small cap area. These are companies that are small enough to figure out how to navigate and possibly improve the stock price a little quicker than a large company.

Burns: So you think that will still prove true, given that we're still in the junk rally, as a lot of people think? Has that happened already?

Fulton: Well you've had some movement. In the last six or eighth months, there has been some pretty good movement in small cap. As I keep saying, people are looking small. They're either looking at emerging market, or they're looking at small cap.

Small cap, though, has been only available in the ETF form, in broader small cap sector, or growth and value. This allows you now to be a little more specific, if there's a certain sector that you need exposure, or you need an opportunity and now you can take a sector look at the marketplace. It's the first of its kind.

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