Eyeing a move into SMIDcaps this year? With many investors already holding significant large-cap allocations in their portfolios, SMIDcap firms could offer diversification as well as upside. Of course, finding the right route into the space stands out as the main task in getting exposure. An active SMIDcap ETF can provide a powerful option therein, with TMSL a notable candidate.
See more: Get the Most From Active Investing With TSPA
(TMSL ), the T. Rowe Price Small-Mid Cap ETF, launched in summer 2023. Charging only 55 basis points, the fund actively invests in U.S. small- and mid-cap firms in a blend of both growth and value styles. Applying bottom-up stock selection, the SMIDcap ETF evaluates firms based on factors like stability, earnings quality, return on equity, and more. It also looks to book value, sales, and cash flow and focuses on small companies with positive net revenue or a clear pathway to profitability.
What kind of firms, then, does the strategy target? For example, TMSL’s top three holdings as of January 15 included TechnipFMC Plc (FTI), Corpay, Inc. (CPAY), and MKS Instruments, Inc. (MKSI).
FTI, a French-American, U.K.-based energy services company, stands out as the “largest pure-play offshore oilfield service provider,” per YCharts. The firm produced 215% diluted EPS quarterly year-over-year (YoY) growth as of January 15, according to YCharts. It also offered a solid 21.3 price-to-earnings (PE) ratio and 14.17% quarterly YoY revenue growth. The firm returned 73.28% over the last one-year period.
CPAY, meanwhile, offers corporate payment services to help manage costs like travel expenses, vendor invoices, and more. CPAY performed in line with the S&P 500 over the last year but has accelerated over the last six months. Per YCharts, it returned 25.1% over six months, compared to just 4.75% for the S&P 500 Total Return index. As of January 15, CPAY offered a 25.86 PE ratio.
Finally, MKSI focuses on providing manufacturing measurement and control systems, leaning heavily towards areas like medical devices and panel displays. MKSI currently has a very high PE ratio but solid diluted quarterly YoY EPS growth of 58.6%. The firm’s stock has returned 10.5% over the last year.
Together, that trio of firms offer examples of the types of names found in the active SMIDcap ETF. For those looking to diversify outside of large-caps, TMSL’s active adaptability, leaning on T. Rowe Price’s fundamental research, may offer a compelling opportunity.
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