A Big Small-Cap Idea For 2018

Small-caps stocks and the corresponding ETFs lagged their large-cap counterparts in the U.S. this year. Investors looking to position for a rebound in smaller stocks in 2018 may want to consider smart beta strategies, such as the Oppenheimer Small Cap Revenue ETF (NYSEArca: RWJ).

RWJ follows a revenue weighting methodology, which could provide diversified exposure to the market, is not influenced by stock price, reflects a truer indication of a company’s value and offers stable sector exposure. Moreover, revenue weighting may provide a more value-oriented portfolio and historically outperformed in a value-driven market while showing lower drawdowns during growth-driven markets.

RWJ is showing signs of being ready to deliver for investors in 2018 with a fourth-quarter gain of about 7%. Furthermore, small-cap stocks were strengthening as traders renewed their outlook on the Trump administration’s pro-growth agenda.

In recent weeks, U.S. markets have been roiled over uncertainty concerning President Donald Trump’s ability to push through pro-growth economic policies through Congress as the White House wades through political intrigue. However, the small-cap segment is recovering on expectations that the administration could overhaul the U.S. tax policy.

The $501 million RWJ holds 604 stocks. Data suggest there is a strong case for employing revenue-weighted strategies, particularly with long-term investments.