Small-cap stocks were among the best-performing assets in the waning stages of 2020, a tide that lifted boats, such as the ERShares International Equity ETF (NYSEARCA: ERSX), and while a pullback would be healthy, smaller stocks still look attractive as 2021 ideas.
ERSX 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.
Adding to the case for ERSX is that domestic large caps, in the eyes of some market observers, pricey while the opposite is true of some small caps, particularly international fare, which ERSX provides exposure to.
“Broad market valuations are no longer cheap (trailing 2020 PE of 27.8x), even when pricing in recovery from the COVID-19 shock. However, this is largely a function of the strong rally in technology-related shares,” according to Citi.
Getting Cyclical with ERSX
Adding to the case for ERSX in 2021 is that ETF’s uncanny ability to blend growth and value with cyclical and defensive exposures.
“As vaccines and treatments grow, a rotation to such cyclicals is highly likely to play out as the eventual departure of COVID-19 could mean more significant recoveries in the most impacted industries,” notes Citi.
The broad health care sector was a strong outperformer as front line workers became the focus of attention amid the Covid-19 pandemic. Small cap equities have been gaining as of late, posting a strong fourth quarter, highlighting the benefits of ERSX’s healthcare exposure.
Modern medicine certainly came to the forefront this year, but it’s a space that will see further strength in the future. Small cap companies can expose investors to companies that are creating the latest and greatest in modern medicine.
“As the population ages in the developed world, the spending habits of this cohort evolves, to the benefit of some companies, including healthcare. Citi analysts note that the healthcare sector has a consistent record of revenues and earnings growth through cycles, but it tends to underperform in the early years of new economic cycles,” according to Financial Express.
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.