Smaller stocks are getting their groove back in a big way and that could be a sign of things to come. All bodes well for exchange traded funds like the ERShares International Equity ETF (NYSEARCA: ERSX).

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.

The ERShares ETF selects the most entrepreneurial, primarily Non-US Small Cap companies, that meet the thresholds embedded in their 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.

“Based on our fundamental, bottom-up approach to valuing the broad stock market, we highlight our view that small- and mid-cap stocks in the value Morningstar Categories offered the most opportunities to investors in our fourth-quarter outlook,” according to the research firm.

ERSX: A Solid 2021 Idea

When it helps to diversify a client’s portfolio and get the additional upside of small caps, advisors should keep ERSX in mind.

ERSX YTD Performance

Small-cap companies could be well-positioned to benefit from a COVID-19 economic recovery. During downturns, small stocks typically underperformed, partially because they have fewer buffers to survive economic shocks. However, smaller companies have rewarded investors for their higher risk over full market cycles. Furthermore, the size factor may be a particularly useful investment in the current economic climate since it has typically outperformed during the recovery period of an economic cycle relative to other factors.

“The combination of reduced political risk and the expectation for a safe and effective vaccine to be rolled out in the first half of 2021 will hasten economic normalization next year. In this scenario, we expect small- and mid-cap stocks in the value category will outperform as their earnings rebound,” according to Morningstar.

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.