While the U.S. dollar strengthens, investors should consider mid- and small-cap exchange traded funds that cover companies with little or no international sales exposure to capture the continued U.S. expansion.
For instance, the iShares Core S&P Mid-Cap ETF (NYSEArca: IJH) and SPDR S&P MidCap 400 ETF (NYSEArca: MDY) both track the S&P MidCap 400 Index, with about 70% mid-cap exposure and 29% in small-caps. The Vanguard Mid-Cap ETF (NYSEArca: VO) provides an alternative as it follows the CRSP US Mid Cap Index, but the it also includes a 17.8% weight in large-caps. [Mid-Cap ETFs Take the Lead]
To access the smaller segment of the market, the iShares Core S&P Small-Cap ETF (NYSEArca: IJR) reflects the S&P SmallCap 600, which includes a 66% tilt toward small-caps and 33% toward micro-caps. The Vanguard Small Cap ETF (NYSEArca: VB) follows the CRSP US Small Cap Index, which also covers a wider market capitalization, including a 41.7% position in mid-caps. Lastly, the widely observed iShares Russell 2000 ETF (NYSEArca: IWM) tracks the Russell 2000, with a 9.4% position in mid-caps, 59.3% in small-caps and 31.3% in small-caps. [Small-Cap ETFs: Look Beyond the Russell 2000]
As the U.S. dollar continues to strengthen against foreign currencies, large-cap companies with overseas revenue streams could see profits diminish. [Strong U.S. Dollar Could Pressure S&P 500 Earnings, ETFs]
Consequently, Goldman Sachs Group analysts recommend holding shares of companies that generate the majority of revenue from domestic markets, reports Dan Strumpf for Wall Street Journal.
The U.S. dollar currency index has recently inched above 100, a 12-year high Friday, and Goldman currency strategists believe it has further to climb, predicting the euro to fall another 10% over the next 12 months.