In the ever-changing equities market landscape, investors have heard a few key themes for years. Small-caps’ potential for upside has been a consistent one, and now could be their time to shine. With uncertainty and inflation risk continuing to loom over expensive megacaps, cheaper small-caps could appeal. The active small-cap ETF TMSL, specifically, could be poised for a strong second half.
See more: Should You Invest in Global or International ETFs?
The T. Rowe Price Small-Mid Cap ETF TSML charges a 55 basis point fee to actively invest in small- and midcap companies. The active ETF leans on T. Rowe Price’s fundamental research capabilities. By assessing firms’ cash flows and other metrics like return on assets and return on equities, the fund can avoid underperformers.
At the same time, that active SMIDcap ETF approach can help the fund adapt to events. For instance, should the Federal Reserve make a major leadership or policy change, the strategy could be faster to adjust. Amid historically low valuations for small caps, specifically, that flexibility and fundamental focus could take advantage of that trend. If rate cuts ever arrive this year, small-caps have historically performed well in a lower rate environment.
The strategy currently holds a number of intriguing names. For example, TMSL invests in Popular, Inc. (BPOB), a financial services firm in Puerto Rico. It currently offers a 2.4% dividend yield and a 11.9 P/E ratio and has returned 10.9% over one month. It also invests in firms like business payments company Corpay (CPAY). CPAY provides a 23.29 P/E ratio and has returned 5.6% over the last month.
TMSL itself has returned 9% over the last one-year period, according to T. Rowe Price data. The fund could make for an intriguing addition to portfolios that may be overweight to large-caps. For those looking for an opportunity in active equities, TMSL may be one to watch.
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