Looking for Fundamentally Sound Small Caps? Look No Further than 'ERSX'

This week will go in market lore, with the ensuing volatility taking a bite out of some previously hot assets. However, some sturdy small caps will show their resilience. The ERShares International Equity ETF (NYSEARCA: ERSX) is a good place for investors to start.

ERSX selects the most entrepreneurial, primarily Non-US Small Cap companies, that meet the thresholds embedded in its proprietary Entrepreneur Factor (EF). ERShares’ ETF delivers strong performance across a variety of investment strategies without disrupting investors’ underlying risk profile metrics. Their geographic diversity enables them to harness global advantages through additional returns associated with currency fluctuations, strategic geographic allocations, comparative trade imbalances, and relative supply/demand strengths.

“Small caps have had an incredible run since the Russell 2000 Index bottomed on March 18, 2020, returning 119% compared to the S&P 500 Index’s 60% return over the period. Will small cap outperformance continue in 2021? The early stages of this business cycle may help determine the direction for small caps as well as earnings per share, stock valuations, and technical trends,” according to Financial Advisor.

ERSX Is Built for this Cycle

The Entrepreneur Non-US Small Cap Index is comprised of 50 Non-US companies from around the world with market capitalizations between $300 million and $5 billion USD.

ERSX 1 Year Performance

While small cap value appears to be solidifying, that doesn’t mean growth is going to lag. Fortunately ERSX addresses both factors.

ERSX can also benefit from structural shifts in the economy, with its technology exposure and allocations to cutting edge healthcare companies. Another tailwind is the Federal Reserve signaling it will do what it takes to support the economy

“Small cap stocks historically have performed well early in economic cycles. Given that the U.S. economy likely came out of recession late last summer or early fall of 2020, 2021 certainly qualifies as early in this cycle. The tremendous performance by small cap stocks over the past 10 months suggests that a lasting economic expansion has begun in earnest and seems to validate the historical cycle pattern of small caps beating large caps early in cycles,” adds Financial Advisor.

Should the economy shake out of the coronavirus funk, ERSX could resume its leadership perch.

“Expectations of this sharp earnings rebound have helped drive strong small cap performance since the bull market began in March 2020. Small cap stocks are broadly more economically sensitive than large cap stocks, which is helpful when economic growth expectations improve. This helps explain why optimism surrounding the reopening of the economy and prospects for more fiscal stimulus under the new administration have given small caps such a big boost lately,” concludes Financial Advisor.

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.