If the market direction is an ocean wave, then small-cap equities are like small boats — they’ll feel the brunt of the impact more than a large-cap cruise liner. The Russell 2000, representative of small-caps, is down about 25%, but the proverbial tide could be turning.
While inflation fears and recession risks have certainly done a number on stocks of all cap sizes this year, a bottom could finally be arriving, if it hasn’t already. The dust could finally be settling on what’s been an extremely volatile first half of 2022.
“The risk in the stock market is far lower today than it was six months ago just by virtue of the correction that we’ve seen. A lot of the excesses are being flushed out as we speak,” said Nicholas Galluccio, co-portfolio manager of the $57 million Teton Westwood SmallCap Equity fund, in a Forbes article. “We think it’s a perfect setup for possibly a strong 2023.”
Getting Active Small-Cap Exposure
Investors who are wary of the market environment, and rightfully so, can still opt to get small-cap exposure by using an active management strategy. This puts the selection of small-cap equites in the hands of professionals, which is an inherent strategy in the Avantis U.S. Small Cap Value ETF (AVUV).
With a greater emphasis on value, the selection of small-cap equities is also more discerning and conducive with the current market environment, where a lot of uncertainty still remains. With AVUV, active management with a focus on value can give investors peace of mind that downturns can be muted while the potential upside of small-caps can be captured in a price rally.
Features of AVUV per its product website:
- Invests in a broad set of U.S. small-cap companies and is designed to increase expected returns by focusing on firms trading at what the company believes are low valuations with higher profitability ratios.
- Pursues the benefits associated with indexing (diversification, low turnover, transparency of exposures), but with the ability to add value by making investment decisions using information in current prices.
- Efficient portfolio management and trading process that is designed to enhance returns with the goal of reducing unnecessary risks and costs for investors.
- Built to fit seamlessly into an investor’s asset allocation.
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