With mid- and small-cap stocks in rally mode, some ETFs could prove better at capturing that bullishness than others. One idea is the Principal U.S. Small-Cap Multi-Factor Index ETF (NASDAQ: PSC).
PSC’s underlying benchmark, the Nasdaq US Small Cap Select Leaders Index, “uses a quantitative model designed to identify equity securities (including growth and value stock) of small-capitalization companies in the Nasdaq US Small Cap Index (the ‘parent index’) that exhibit potential for high degrees of sustainable shareholder yield, pricing power, and strong momentum while adjusting for liquidity and quality,” according to Principal.
“Small- and mid-cap stocks have taken off in recent weeks, and Jefferies said in a new note that there are several stocks that will lead the next leg of the rally,” reports CNBC. “Since a June 11 pullback, the Russell 2000 has risen 5.7% while the S&P 500 has bounced back 3.8%. Smaller stocks should continue to be a smart bet in the weeks ahead, the firm said in a note to clients.”
Small cap exchange-traded funds (ETFs) have also been having their own fun as they ride the recent wave of optimism on the economy reopening, which is also exhibiting a tilt towards value.
PSC Right for The Moment
Amid a crisis, there can be opportunities arising, such as in the small cap space where pharmaceutical companies are taking advantage of developing treatment options to combat COVID-19. This scenario sets up nicely for investors to take advantage of not only small cap stocks but also small cap-focused exchange-traded funds (ETFs) while there are discounts available.
In a volatile market, it can also help investors to use factor investing to filter out the best opportunities. Nowadays, the focus has been quality and value amid the discounted equities, but investors also shouldn’t miss out on other factors like growth or momentum.
PSC’s index uses a quantitative model designed to identify equity securities (including growth and value stock) of small-capitalization companies in the Nasdaq US Small Cap Index that exhibit potential for high degrees of sustainable shareholder yield, pricing power, and strong momentum, while adjusting for liquidity and quality.
The average market value of PSC’s 474 holdings is $1.55 billion. The fund devotes over a third of its weight to financial services and consumer cyclical stocks.
For more on multi-factor strategies, visit our Multi-Factor Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.