As market participants ponder potential upside with smaller stocks and international equities following U.S. elections, the ERShares International Equity ETF (NYSEARCA: ERSX) is receiving more attention.
Investors may want to take heed and evaluate ERSX as results from the 2020 election become clear and the outlook for 2021 does the same.
“First, while elections can have significant consequences for us as citizens, they generally have far less impact for investors than is widely believed, notes Steve Lipper, Senior Investment Strategist at Royce Investment Partners. “Small caps have both done well and poorly when either party has occupied the White House. Second, we should all be humble when offering predictions about the effects of any policy or development not simply because unexpected events rear their heads (such as the 2008-09 Financial Crisis and the current pandemic), but also because investors tend to overweight the impact that government actions can have on stocks.”
More on ERSX Pros Going Forward
ERSX attempts to deliver enhanced returns and maximize diversification in an attempt to provide potentially improved risk-adjusted returns, compared to traditional market-capitalization-weighted indices.
ERSX tracks 50 non-U.S. companies from around the world with market capitalizations between $300 million and $5 billion USD and the highest rank based on the six investment style factors. ERSX could also be worth considering on the back of a blue wave.
“Third, a sweep is far more consequential than whichever party wins the White House. In today’s highly partisan environment, the likelihood for consequential investment legislation looks low—unless one party gains majorities in both houses of Congress in addition to the White House,” said Lipper. “And even in that case, the long-term effects are likely to be less meaningful compared to where we are in the economic cycle.”
Owing to the Federal Reserve’s move to take interest rates to record lows, the U.S. dollar is sagging this year. Greenback weakness doesn’t spell trouble for investors considering international equities.
Adding to the case for ERSX, emerging-markets earnings are even expected to rebound more than U.S. earnings in 2021. Overseas developed-market earnings are anticipated to bounce back further than U.S. profits next year as well.
“Moreover, economic recoveries have historically benefited small-cap stocks, and we expect this one will be no different,” said Lipper. “If we elect a divided government, the recovery is likely to proceed at a moderate pace. If one party sweeps, then we may get a more significant fiscal response, driven either by tax cuts or spending increases. Either way, a significant increase in fiscal stimulus would likely improve what we think is already a favorable climate for small-cap stocks.”
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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.