About U.S. exchange traded micro cap stocks
Introduction
There are 1,000+ stocks of U.S. companies that are traded on U.S. stock exchanges that are very small in size and that are usually referred to as "micro cap" or "microcap" stocks. Very little attention is paid to them by the news media and most institutional investors. The purpose of this article is to provide an overview of U.S. micro cap stocks so that you can understand them better, and also to provide some background as to why so little attention is paid to them.
Note that this article is not focused on the 1,000+ stocks of U.S. companies that are traded over-the-counter ("OTC") and that are mostly micro cap stocks. For information about OTC micro cap stocks, you can read about OTC stocks and list of U.S. otc stocks.
Overview of U.S. micro cap stocks
As explained in our article about the U.S. stock market, the U.S. stock market is dominated by the 500+ common stocks of well known large American corporations like Wells Fargo, Coca Cola, GE and Home Depot. These are often called "large cap" stocks because they have a total market capitalization greater than $10 billion. The term "market capitalization" reflects the total value of a company's stock, using the current market price of the stock. So if a company has 1,000,000 shares of common stock, and those shares are trading on the stock market at a price of $10 per share, that company has a market cap of $10,000,000.
U.S. common stocks are typically categorized into one of four categories based on the size of their market capitalization. There is no set rule, but we follow a set of guidelines that are fairly common:
- Large cap - $10 billion+
- Mid cap - $2 billion to $10 billion
- Small cap - $300 million to $2 billion
- Micro cap - under $300 million
Here is a summary of the U.S. common stocks in our database based on these size categories:
| Category | Stock count | Total market cap | % |
|---|---|---|---|
| Large cap | 814 | $62T | 91.07% |
| Mid cap | 996 | $4.71T | 6.84% |
| Small cap | 1,391 | $1.25T | 1.81% |
| Micro cap | 2,323 | $195B | 0.28% |
| Total | 5,524 | $68T | 100.00% |
Micro cap stocks by sector
In the investing world, there is a lot of discussion and analysis of stock market "sectors" or even "sectors of the economy". Every stock is analyzed to determine what part of the economy or "sector" the business operates in. The sector classification system is important to investors because during different time periods, the different sectors of the economy and therefore the sectors of the stock market perform quite differently. For example, a grocery market chain is not going to be as affected by a recession as a seller of luxury goods. So during different phases of the economic cycle, certain sectors of the economy and therefore the stock market will perform better than others. During stock market down turns, many investors will shift their focus to "safer" sectors like the utilities sector. So a lot of effort goes into analyzing stock market performance based on sectors.
Here is a summary of the U.S. micro cap stocks in our database by sector:
| Sector | Stock count | Total market cap | % |
|---|---|---|---|
| Healthcare | 611 | $43B | 24.84% |
| Technology | 306 | $23B | 13.24% |
| Financials | 333 | $22B | 13.09% |
| Undefined | 227 | $20B | 12.04% |
| Consumer Cyclicals | 206 | $16B | 9.36% |
| Industrials | 189 | $14B | 8.57% |
| Basic Materials | 78 | $9.48B | 5.45% |
| Energy | 78 | $8.11B | 4.66% |
| Real Estate | 65 | $6.45B | 3.71% |
| Consumer Non-Cyclicals | 96 | $5.88B | 3.38% |
| Utilities | 19 | $2.06B | 1.18% |
| Telecommunications Services | 6 | $846M | 0.49% |
| Total | 2,214 | $174B | 100.00% |
The thing to note here is that micro cap stocks have a different sector makeup than large cap stocks, for two reasons:
- Large cap stocks are dominated by stocks in the Information Technology sector (like Apple and Microsoft)
- Micro cap stocks are dominated by stocks in the Financials and Health Care sectors
Micro cap stocks are dominated by stocks in the Financials sector for two reasons: the U.S. has a large number of small regional banks that are publicly traded and because of a large number of shell companies (see the list of micro cap stocks by industry below). A shell company is a newly formed company that raises money by selling stock to the public in order to eventually buy, or enter into a merger with, an existing operating business. Shell companies are like venture capital firms, except that shell companies usually end up buying just one company, rather than investing in a bunch of different companies like a venture capital firm.
Micro cap stocks are dominated by stocks in the Health Care sector because the U.S. has a very active biotechnology research industry. Research to discover new drugs and/or medical treatments is very expensive and speculative. There are hundreds of small biotech companies that raise money by selling stock to the public, many of whom have little or no revenue as they are formed to pursue research. Investors are eager to buy stock in these companies because the rewards can be great if one of these companies comes up with the next great cure for cancer, but investing in these companies is very speculative as it is very difficult for an investor to know or even make an educated guess as to which one of these companies will actually succeed.
Micro cap stocks by industry
The prevalence of regional banks, biotechnology companies and shell companies can be seen by looking at micro cap stocks by industry classification. Here is a summary of the U.S. micro cap stocks in our database by industry:
| Sector | Stock count | Total market cap | % |
|---|---|---|---|
| Biotechnology | 383 | $27B | 15.54% |
| Undefined | 227 | $20B | 12.04% |
| Banks | 119 | $19B | 11.22% |
| Medical Equipment | 110 | $8.27B | 4.75% |
| Shell Companies | 129 | $6.92B | 3.98% |
| Software | 92 | $6.57B | 3.77% |
| Pharmaceuticals | 88 | $5.51B | 3.17% |
| Other Metals & Minerals | 28 | $3.99B | 2.29% |
| Online Services | 47 | $3.51B | 2.01% |
| Other REITs | 34 | $2.82B | 1.62% |
| Oil and Gas Exploration & Production | 28 | $2.62B | 1.51% |
| IT Services & Consulting | 42 | $2.57B | 1.47% |
| Networking & Communications | 29 | $2.56B | 1.47% |
| Industrial Machinery & Equipment | 27 | $2.48B | 1.42% |
| Healthcare Facilities & Services | 30 | $2.39B | 1.38% |
| Semiconductors | 26 | $2.33B | 1.34% |
| Electronic Equipment | 24 | $2.33B | 1.34% |
| Food Processing | 29 | $2.27B | 1.31% |
| Gold | 14 | $2.24B | 1.29% |
| Car parts | 17 | $2.23B | 1.28% |
| Electrical Equipment | 28 | $2.18B | 1.25% |
| Apparel Retailers | 16 | $2.06B | 1.19% |
| Business Support Services | 29 | $1.79B | 1.03% |
| Oil Related Services & Equipment | 16 | $1.74B | 1.00% |
| Recreational Products | 14 | $1.57B | 0.90% |
| Mortgage REITs | 11 | $1.52B | 0.87% |
| Investment Management & Fund Operators | 17 | $1.49B | 0.86% |
| Shipping | 15 | $1.41B | 0.81% |
| Apparel | 16 | $1.41B | 0.81% |
| Aerospace & Defense | 18 | $1.37B | 0.79% |
| Restaurants | 16 | $1.33B | 0.76% |
| Property & Casualty Insurance | 8 | $1.28B | 0.73% |
| Broadcasting | 10 | $1.07B | 0.61% |
| Electric Utilities | 12 | $1.04B | 0.60% |
| Engineering & Construction | 12 | $1.01B | 0.58% |
| Consumer Lending | 11 | $934M | 0.54% |
| Fishing & Farming | 15 | $929M | 0.53% |
| Renewable Fuels | 7 | $924M | 0.53% |
| Heavy Machinery & Vehicles | 6 | $901M | 0.52% |
| Uranium | 4 | $860M | 0.49% |
| Appliances, Tools & Housewares | 9 | $843M | 0.48% |
| Marketing & Advertising | 19 | $834M | 0.48% |
| Office REITs | 7 | $828M | 0.48% |
| Courier, Postal, Air Freight & Land-based Logistics | 7 | $798M | 0.46% |
| Water | 5 | $790M | 0.45% |
| Specialty Chemicals | 5 | $749M | 0.43% |
| Computer Hardware | 10 | $727M | 0.42% |
| Oil and Gas Transportation Services | 5 | $710M | 0.41% |
| Fintech | 8 | $708M | 0.41% |
| Cryptocurrency | 12 | $702M | 0.40% |
| Home Furnishings | 6 | $663M | 0.38% |
| Environmental Services & Equipment | 13 | $647M | 0.37% |
| Commodity Chemicals | 7 | $638M | 0.37% |
| Integrated Telecommunications Services | 4 | $627M | 0.36% |
| Renewable Energy Equipment & Services | 14 | $617M | 0.35% |
| Professional Information Services | 6 | $599M | 0.34% |
| Personal Services | 9 | $569M | 0.33% |
| Employment Services | 11 | $556M | 0.32% |
| Leisure | 9 | $550M | 0.32% |
| Corporate Financial Services | 4 | $537M | 0.31% |
| Personal Products | 6 | $515M | 0.30% |
| Toys | 5 | $503M | 0.29% |
| Other Retailers | 5 | $469M | 0.27% |
| Cars | 15 | $464M | 0.27% |
| Entertainment Production | 9 | $459M | 0.26% |
| Food Retail & Distribution | 7 | $457M | 0.26% |
| Agricultural Chemicals | 5 | $410M | 0.24% |
| Household Electronics | 6 | $407M | 0.23% |
| Business Support Supplies | 3 | $405M | 0.23% |
| Residential REITs | 3 | $396M | 0.23% |
| Retail REITs | 3 | $385M | 0.22% |
| Education | 15 | $370M | 0.21% |
| Investment Banking & Brokerage Services | 8 | $364M | 0.21% |
| Home Improvement Products & Services Retailers | 4 | $359M | 0.21% |
| Multiline Insurance & Brokers | 5 | $342M | 0.20% |
| Integrated Oil & Gas | 2 | $341M | 0.20% |
| Iron & Steel | 6 | $332M | 0.19% |
| Semiconductor Equipment & Testing | 3 | $332M | 0.19% |
| Life & Health Insurance | 4 | $315M | 0.18% |
| Home Furnishings Retailers | 2 | $313M | 0.18% |
| Paper Products | 2 | $301M | 0.17% |
| Drug Retailers | 5 | $283M | 0.16% |
| Casino & Gaming | 5 | $282M | 0.16% |
| Office Equipment | 3 | $267M | 0.15% |
| Coal | 1 | $264M | 0.15% |
| Commercial Printing Services | 1 | $261M | 0.15% |
| Aluminum | 1 | $257M | 0.15% |
| Construction Materials | 4 | $255M | 0.15% |
| Tobacco | 4 | $236M | 0.14% |
| Gas Utilities | 2 | $230M | 0.13% |
| Wifi | 2 | $218M | 0.13% |
| Hospitality REITs | 4 | $198M | 0.11% |
| Textile & Leather | 3 | $184M | 0.11% |
| Heavy Electrical Equipment | 4 | $184M | 0.11% |
| Non-Alcoholic Drink | 2 | $183M | 0.11% |
| Homebuilding | 2 | $178M | 0.10% |
| Industrial REITs | 1 | $174M | 0.10% |
| Containers & Packaging | 4 | $170M | 0.10% |
| Reinsurance | 3 | $147M | 0.08% |
| Construction Supplies & Fixtures | 5 | $146M | 0.08% |
| Platinum | 1 | $125M | 0.07% |
| Car retailers | 5 | $112M | 0.06% |
| Department Stores | 7 | $97M | 0.06% |
| Marine Port | 2 | $97M | 0.06% |
| Airlines | 2 | $96M | 0.06% |
| Ground Freight & Logistics | 2 | $94M | 0.05% |
| Consumer Publishing | 3 | $92M | 0.05% |
| Healthcare REITs | 1 | $69M | 0.04% |
| Hotels & Cruise Lines | 3 | $60M | 0.03% |
| Distillers & Wineries | 4 | $59M | 0.03% |
| Self-Storage REITs | 1 | $58M | 0.03% |
| Passenger Transportation | 2 | $38M | 0.02% |
| Phones & Handheld Devices | 4 | $35M | 0.02% |
| Investment Holding Companies | 1 | $33M | 0.02% |
| Oil and Gas Refining | 1 | $22M | 0.01% |
| Financial & Commodity Market Operators & Service Providers | 1 | $17M | 0.01% |
| Forest & Wood Products | 1 | $13M | 0.01% |
| Computer & Electronics Retailers | 1 | $1M | 0.00% |
| Industrial Conglomerates | 1 | $11K | 0.00% |
| Collective Investments | 23 | $-9.12B | -5.24% |
| Total | 2,214 | $174B | 100.00% |
ETFs that buy micro cap stocks
One reason that micro caps aren't heavily discussed could be that micro caps are not included in very many of the most common U.S. stock market indexes. This becomes important because there are a lot of exchange traded funds, or "ETFs", and mutual funds that are "index funds" — they make investment decisions simply by buying the stocks in the index they are setup to track.
There are a handful of ETFs that we have categorized as "total market" ETFs — i.e. they buy, or attempt to buy, most if not all U.S. stocks on the stock market:
However, if you look at the stocks these ETFs are holding, they usually don't include all micro cap stocks. This is partly explained by the popularity of the Russell 3000 Index, an old, widely followed index that includes the 3,000 largest U.S. stocks based on market capitalization. The number of U.S. stocks varies every day, but right now, the Russell 3000 includes only 400 or 500 micro cap stocks.
There are a handful of ETFs that focus on micro cap stocks:
However, if you look at the stocks these ETFs are holding, even though the word "micro cap" is in their names, these ETFs generally include a heavy allocation to stocks that we classify as small cap stocks rather than micro cap stocks. As explained above, there is no standard definition of a micro cap stock. Using our definitions, these micro cap ETFs actually invest in only a portion of the 1,000+ micro cap stocks.
Based on the above, it's clear that index ETFs (and index mutual funds) are unlikely to hold a significant amount of micro cap stocks. That probably explains also some of the apparent lack of interest in them.