Smaller companies are cobbling together some momentum and while basic indexes provide pure beta exposure to small-cap equities, investors can also enhance outcomes with unique strategies, such as the ERShares International Equity ETF (NYSEARCA: ERSX).
“ERSX is now ranked #1 in its category for the past 1 year. We continue to remain optimistic for Entrepreneurial (Disruptor/Innovator) companies going forward—especially in the International Small Cap and HealthCare categories,” according to EntrepreneurShares.
Alone, that’s impressive, but there are other reasons to consider ERSX over the near-term.
“That uncertainty has mostly favored large-cap stocks, as their resilient earnings and strong balance sheets provided a level of comfort for investors daunted by the economic uncertainty,” reports Matthew Fox for Business Insider. “But now, the economy is in a much better place today than it was in the spring, leading LPL to believe that now is a good time to start warming up to small-cap stocks, according to a Monday note from the firm.”
Evaluating ERSX: Timing Recession Recovery?
As the U.S. economy rebounds from the coronavirus pandemic, small-cap names could be particularly for investors.
“Given our view that we’re in the early stages of the business cycle and a new bull market, we point out that small cap stocks historically have performed well relative to their large cap counterparts coming out of recessions. The story is the same coming off of major bear market lows where, on average, small caps have outperformed large caps by about 15% during the first year of bull markets, according to a study by Ned Davis Research,” notes LPL.
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.
While small caps can still provide the growth-fueled formula that helped to accelerate the decade-long bull run before the Covid-19 pandemic threw a wrench into those plans, advisors should tread lightly before putting client capital into these funds. This is especially the case now with a lot of market uncertainty still lingering with the pandemic and a forthcoming U.S. presidential election.
Nevertheless, ERSX is positioned to thrive in 2021.
“Case in point, for 2021 small cap earnings are expected to rebound sharply-potentially by 180% based on the latest FactSet estimates-to more than 10% above 2019 levels,” according to LPL.
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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.