20 Metrics, 1 Goal: A Meticulous Small Cap Approach with 'CSML'

Small cap equities remain hot, but there’s still some risk in the space. Investors can allay this concern with multi-factor strategies like the IQ Chaikin U.S. Small Cap ETF (NasdaqGM: CSML).

Through the Chaikin Power Gauge stock rating tool, investors dive deeper into funds holdings and the four main factors, exploring the sub-metrics that help define the Power Gauge’s rating system.

The value factor includes screens like LT debt to equity ratio, price to book value, return on equity, price to sales ratio, and free cash flow. Technical factors cover price trend, price trend rate of change, relative strength vs. market, and volume trend. Growth factors include earnings growth, earnings surprise, earnings trend, projected P/E ratio, and earnings consistency. Lastly, the sentiment factor screens for earnings estimate trend, short interest, insider activity, analyst ratings, and industry relative strength.

CSML 1 Year Total Return

A Nuanced Approach: Why to Call on CSML

CSML offers investors plenty of perks not found in cap-weighted small cap funds. Single factors exhibit a highly cyclical nature from year to year, which leaves market timing hard to predict. Consequently, investors may combine the various factors to create a more diversified solution to enhance returns over time.

Other potential benefits with CSML include small caps’ historical outperformance to large, and the ability to recover faster from market downturns. Furthermore, small caps have also outperformed large caps during periods of rising rates since higher rates typically accompany periods of higher growth. Small caps have historically rise faster, as they grow off a smaller base.

CSML tries to reflect the performance of the Nasdaq Chaikin Power US Small Cap Index.

The smart beta ETF’s underlying index will identify each security’s ability to outperform market-weighted products and active strategies. The Chaikin Power Gauge is a 20-multi-factor model that screens for value, growth, technical, and sentiment factors. Many of these factors have been utilized by institutional investors and money managers as a way to manage risk or potentially enhance a portfolio’s return.

Smaller companies are more levered to economic rebounds, enhancing the potential of CSML this year.

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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.

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