Actively managed funds, including active exchange traded funds, can benefit as smaller stocks continue to rebound.
Recent political outcomes have removed some uncertainty from financial markets, and that could be a plus for actively managed investment opportunities going forward. The Russell 2000 Index, a broad-based small-cap gauge, hit a record high Monday. Further adding to the allure of smaller stocks is widespread participation in the upward move.
“Small hasn’t been beautiful for stock-market investors for quite some time, but that leaves shares of smaller companies plenty of room to run if investors follow through on a rotation away from large-cap tech shares fueled by progress toward a COVID-19 vaccine, analysts said,” reports William Watts for MarketWatch.
Smaller stock opportunities exist worldwide. Some of those names have been trading on average at a 40% discount to US small- and mid-caps. Yet investors have not taken advantage of this opportunity.
The Easiest Countries for Commerce
Conversely, U.S. small- and mid-caps have it easier than their international peers. Smaller U.S. companies benefit from operating in one of the easiest countries for commerce. The US regularly places near the top in the World Bank’s annual rankings of countries for its ease of doing business. The companies have access to a population of 330 million consumers who speak one language, and they operate one set of national laws and regulations.
“If tech has been a rocket, small-caps have been a submarine. With the exception of the post-corporate tax reform run, and a few other blips, flows have been consistently negative for this group for [around]nine years,” wrote analysts at Jefferies.
In other words, there’s still plenty of opportunities for active managers to exploit with smaller stocks.
According to MarketWatch: “The Jefferies analysts said they’ve long argued that small-caps were poised to “disproportionately benefit” from a full-fledged economic recovery — not only based on fundamentals but also on positioning, given investors’ underexposure to the segment and heavy exposure to tech.”
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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.
