ETF’s driving small-cap stock volume: Trading Opportunity?

Growing assets of ETF’s are apparently beginning to roil some small stocks, at least according to recent research. Stock-Net has looked into this, and wonders if this is a mere curiousity or a true trading opportunity?

The news comes from Prudential Equity Group research, who studied the effects of trading small-cap ETF’s upon the underlying small cap stocks tracked as part of the ETF’s indexing. As dollar-volumes increase in the ETF’s, trading volumes of the underlying small cap stocks in the index increase. For some small cap stocks, the ETF-driven volumes can become a significant part of their average daily trading volume. According to the research, ETF-driven volume can produce more than 30% of daily volume of some small-cap stocks.

In the research, the iShares Russell 2000 ETF was studied for its impact on some underlying small cap stocks. With $11 Billion in assets, the Russell 2000 ETF can produce some significant trading volumes for its tracked securities. Here are some of the securities highlighted as having a significant portion of daily trading volume driven by ETF’s:

• Shore Bancshares, 53%
• SCBT Financial, 52%
• Shenandoah Telecom, 44%
• Univest Corp of Pennsylvania, 42%
• Smithtown Bancorp, 38%
• First South Bancorp, 37%

Keep this factor in mind the next time you see unexplained volume on your favorite small cap stock, it could be driven by ETF trading activity.

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