In yet another indication that small caps may be rising entering 2024, the active small-cap ETF TMSL is showing notable returns. TMSL, the T. Rowe Price Small-Mid Cap ETF, launched just this year but has spiked over the last month. Indeed, the strategy has returned 11.9% in that time per VettaFi, beating both its ETF Database Category and FactSet Segment Averages. As such, it may be time to take a closer look.
Why look to small caps right now? Small caps remain pretty cheap especially compared to the so-called “Magnificent Seven” that have led the market. That discount seen in small caps has neared the “steepest” on record, even. As such, it presents an intriguing place to look for equities, especially when the right small caps can present a big upside.
An active small-cap ETF like TMSL may offer one of the best options for finding the right small caps. TMSL assesses opportunities in small and midcap equity spaces based across both growth or value styles. The active ETF uses bottom-up stock selection, evaluating firms on valuation, profitability, earnings quality, projected growth, and more. Its active managers bring their experience to look at prices relative to sales, cash flow, earnings, and more.
That approach has led TMSL to hold firms like toolmakers Stanley Black & Decker (SWK) as well as tech firm Dynatrace (DT). That approach has also helped TMSL reach more than $50 million in AUM in just a few months.
With rate cuts potentially on the horizon, small caps could benefit. While they still face a challenging high-rate environment, that adds to the case for an active small-cap ETF. An active strategy can assess a small-cap firm’s likelihood of struggling with the current rate regime. Taken together, TMSL can appeal to those investors revisiting their portfolios entering 2024.
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