Small-cap stocks are picking up the pace, again looking like a leadership group, a scenario boding well for the ERShares International Equity ETF (NYSEARCA: ERSX).

ERSX YTD Performance

In recent weeks, small cap equities have been keeping pace their large cap brethren, but before advisors start sticking their clients into these small cap funds, they might want to think twice. While it helps to diversify a client’s portfolio and get the additional upside of small caps, advisors should keep quality in mind.

“Large-cap and growth shares have dominated the factor horse race during the US stock market’s rebound from the coronavirus crash in May – a trend that carried over from the pre-pandemic period. But the recent strength in small-cap equities hints at the possibility that a leadership change may be unfolding,” writes James Picerno for Seeking Alpha.

Why Staying Small Makes ERSX Excellent

ERSX tracks 50 non-U.S. companies from around the world with market capitalizations between $300 million and $5 billion USD and have the highest rank based on the six investment style factors.

“EntrepreneurShares has created a rules-based methodology that selects publicly-traded Entrepreneurial companies,” according to the issuer. “This procedure is applied in creating the Entrepreneur Non-US Small Cap Index. The Index is comprised of 50 Non-US companies form around the world with market capitalization based between $300 million and $5 billion USD.”

In today’s market brimming with uncertainty surrounding the coronavirus outbreak, it can also help investors to use factor investing to filter out the best opportunities. Nowadays, the focus has been quality and value amid the market uncertainty caused by the pandemic, but investors also shouldn’t miss out on other factors like growth or momentum.

Adding to the case for ERSX is the fact that small caps are attractively valued from a historical perspective.

“If coronavirus risk remains muted in terms of reversing the recent US economic rebound, the case for small caps looks bright, or least brighter, relative to the last several years,” notes Picerno.

For more on entrepreneurial strategies, visit our Entrepreneur ETF Channel.

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.