Principal Exchange-Traded Funds Principal U.S. Small-Cap ETF (PSC) seeks to track the performance of small-capitalization U.S. companies, typically those with market values between $300 million and $2 billion that represent emerging growth opportunities in the American economy.
How It Works
PSC employs a passively managed approach that mirrors its underlying small-cap index through market-capitalization weighting, where larger small-cap companies receive proportionally higher allocations within the fund. The ETF rebalances quarterly to maintain proper index alignment and sector diversification. Holdings typically include 600-800 small-cap stocks across various sectors, with no single position exceeding 2-3% of total assets to maintain broad diversification within the small-cap universe.
Key Features
- Zero expense ratio provides cost-free access to small-cap exposure, saving investors significant fees compared to typical 0.60-0.80% small-cap fund costs
- Focuses exclusively on U.S. small-cap companies, offering pure-play exposure to domestic emerging growth businesses without large-cap dilution
- Launched in 2016 with established track record, though current low AUM may indicate limited trading volume and wider bid-ask spreads
Risks
- This ETF can lose value significantly during economic downturns when small-cap stocks typically decline 40-50% more than large-caps due to reduced access to capital
- Low assets under management may result in poor liquidity, wider bid-ask spreads, and potential closure risk if the fund fails to attract sufficient investor interest
- Small-cap stocks exhibit higher volatility than large-caps, with potential for 20-30% swings during normal market cycles due to limited analyst coverage and institutional ownership
Who Should Own This
Best suited for aggressive growth investors with 7+ year time horizons and high risk tolerance seeking small-cap exposure as a satellite holding (5-15% of equity allocation). Appropriate for investors building diversified portfolios who want to capture the higher growth potential of smaller U.S. companies while accepting increased volatility.