A new all-ETF model portfolio is now available to ETFdb Pro members; the Small Cap ETFdb Portfolio offers a broad-based, balanced collection of ETFs constructed for investors who believe that small cap securities offer a superior long-term risk/return profile relative to large cap stocks.
Most portfolios make moderate allocations to mid cap and small cap securities, allowing for large cap securities to account for the majority of equity exposure. While there are some advantages to such an approach, there are also certain drawbacks; tilts towards large caps can result in top-heavy exposure, limited diversification, and skewed sector profiles that drastically underweight industries that may be important to solid long-term performance.
Investing in small caps may appeal to investors looking to enhance long term returns, as smaller securities have historically delivered more substantial capital appreciation than large cap securities. Moreover, a small cap-focused approach may have some benefits when it comes to international exposure; whereas large caps tend to be multi-national companies that generate revenue and earnings around the globe, small caps may be more of a “pure play” on the local economy. Small caps can also deliver greater balance and reduced company-specific risk, steering clear of strategies that give huge weightings to a small handful of mega cap stocks.
The new Small Cap ETFdb Portfolio is designed for investors who want to build a well diversified portfolio constructed entirely of small cap stocks, including domestic and international exposure as well as allocations to fixed income and real estate holdings. While the exclusion of large cap stocks limits the portfolio somewhat, the new ETFdb portfolio still offers impressive diversification, including thousands of component securities across dozens of emerging and developed economies. And while the Small Cap ETFdb Portfolio is a bit more expensive than our Cheapskate ETFdb Portfolio, it is still very efficient from a cost perspective.
Disclosure: No positions at time of writing.