Is now the time to buy small caps? Small caps haven’t exactly been the hottest investment area in equities over the last few years. However, the times may change, particularly as that middling performance has historically left small caps cheap. Small caps, of course, offer significant potential for upside and growth. While the high-rate environment can challenge the smaller firms’ balance sheets, an active ETF can identify the best potential options in such an environment.
By some measures, small caps are trading near their steepest discount on record. Yes, those stocks have become so cheap partly due to the economic environment. However, it isn’t often the case that a traditionally intriguing equity type can be had at such value. Indeed, while those higher rates are tough, the Fed may be “done” raising rates with that recent cool CPI print. Perhaps even more enticingly, 2024 could even see rate “cuts” that could boost equities, including small caps.
See more: As Global Inflation Ebbs, Try a Global Active ETF
Investors do have one powerful tool, however, to invest in small caps in such an intriguing but delicate environment: active investing. An active ETF like the T. Rowe Price Small-Mid Cap ETF (TMSL ), for example, can offer a potent route into the space. TMSL actively invests in small and mid-cap firms based on either growth or value views. The strategy looks for active, bottom-up portfolio construction, considering stocks based on relative valuation, profitability, earnings quality, and more.
That bottom-up stock analysis via TMSL offers a way to assess each small-cap firm to see if its price justifies the challenging market environment. TMSL charges a 55 basis point (bps) fee, and having launched just this year, it has outperformed its averages over the last month, per VettaFi. Moreover, the strategy has also done well over the last week per VettaFi, returning 3.9%. For investors looking at an intriguing opportunity for upside in historically cheap small caps, consider TMSL.
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