With 2022 poised to be a lousy year for large-cap stocks, it’d be reasonable to assume the same is true for small-cap equities like QQQS.
To an extent, that’s accurate. However, the S&P SmallCap 600 Index is beating the large-cap S&P 500 by nearly 400 basis points year-to-date, and some market observers are betting on more of the same in 2023. If stocks rebound next year, it could well be smaller names doing the leading, not large-caps.
That would bode well for an assortment of exchange traded funds, including the new Invesco NASDAQ Future Gen 200 ETF (QQQS). QQQS is just over a month old, but that’s not an indictment. Rather, it could be a sign that the Invesco ETF is at the right place at the right time, particularly with support for small-caps in 2023 growing among professional investors.
“Last year we said small-cap Quality was historically mispriced, but did not think the macro environment favored small caps over large caps,” noted Wells Fargo in a recent report. “Going forward, we still believe in a High Quality approach, and we now expect small caps to outpace large caps.”
The bank turned constructive on small-cap growth stocks earlier this year. That’s relevant to investors considering QQQS, which is a small-cap growth ETF. QQQS follows the Nasdaq Innovators Completion Cap Index, which is the completion benchmark for the Nasdaq-100 Index and Nasdaq Next Generation 100 Index.
Looked at another way, the small-cap companies in QQQS today could one day be the large-cap names residing in the Nasdaq-100 Index. Bolstering the case for QQQS is the point that Wells Fargo sees small-caps as undervalued today, and believes that the group is oversold. That could be a compelling combination for bargain hunters — an endeavor made easier by QQQS. The bank says it’s attempting to be proactive in highlighting small-caps before year-end.
“In general, we are taking a ‘FIFO approach’ to EPS revisions and believe companies that are already managing down expectations offer a slightly better risk/reward, all else being equal,” according to the research firm.
QQQS allocates 54% of its weight to healthcare equities, which is to say if biotech bounces back in a material fashion in 2023, the new Invesco ETF could soon be validated. None of the ETF’s 197 holdings exceed a weight of 1.10%.
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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.