If the dollar remains weak and the markets stay depressed, large-cap exchange traded funds (ETFs) are poised to be sitting pretty.
That’s according to Neil Michael, head of quantitative strategies for SPA ETFs. “I suspect that they will outperform small- and possibly mid-caps, as well.”
Growth in the United States 2008-2009 is going to be below-trend. The tendency for large-cap ETFs to have greater international exposure will work in their favor, Michael says.
Over the last six months, mid- and small-caps have been outperforming the large in all three of the blend, growth and value categories. Large caps, in turn, are down 8.6% for value, 4.9% for blend and 1.4% for growth.
But thanks to slower growth, large-caps are in a position to deliver numbers, says Michael. “Large caps will benefit because the dollar is the weakest they’ve been in decades. That’s a massive competitive boost to U.S. equities and multinational companies, which tend to be large caps.”
Even if the dollar did improve overnight, the effects wouldn’t be seen for a couple years as far as large-caps are concerned, he says.
In 2005, Michael points out, the GDP deficit was 6%. The number has slowly improved to 4%, and companies are benefiting – particularly the large caps.