Consider This Active ETF for a Small-Cap Rebound

With the Russell 2000 up just over 3% year-to-date versus the S&P 500’s 12%, the environment may not be quite right for a small-cap rebound just yet, but investors can still capture the early momentum prior to a big rebound with exchange traded funds (ETFs) such as the Avantis U.S Small Cap Equity ETF (AVSC).

Given its positive gain after a tumultuous 2023, the early rebound could be underway. With the potential for a recession still looming, advisors may still be positioning investors to remain on the defensive. However, that doesn’t mean getting early exposure to growth via small-caps won’t benefit.

Heading into the second half of 2023 and into 2024, if more positive momentum is ahead, look for small-caps to push in front of their large-cap counterparts in a recovery.

“Small-cap companies are usually the most vulnerable to volatility, with their stock prices and earnings getting hit particularly hard and early in economic downturns, much like what occurred in 2022,” an Alliance Bernstein blog succinctly put it. “Yet they also tend to lead the way on both fronts during recoveries.”

Active, Diversified Small-Cap Exposure

With over 1,300 holdings (as of April 30), well-diversified AVSC seeks to prevent over-concentration in its broad portfolio. Additionally, its active management component allows it the flexibility to change holdings when market conditions warrant an adjustment.

In order to remain competitive with their passive fund counterparts, more active funds have been shifting to offer cost-effective solutions. AVSC is a prime example of this transition with its low 0.25% expense ratio.

Per its fund description, AVSC seeks long-term capital appreciation and invests primarily in a diverse group of U.S. small-cap companies across market sectors and industry groups, taking into consideration valuation, profitability, and levels of investment when selecting and weighting securities.

AVSC features:

  • Invests in a diverse group of U.S. small-cap companies, taking into consideration valuation, profitability, and levels of investment when selecting and weighting securities.
  • Pursues the benefits associated with indexing (diversification, low turnover, transparency, and tax efficiency). Includes the ability to add value by making investment decisions using information in current prices.
  • Efficient portfolio management and trading process designed to enhance returns while seeking to reduce unnecessary risks and costs for investors.
  • Built to fit seamlessly into an investor’s asset allocation.

For more news, information, and analysis, visit the Core Strategies Channel.