ETF Trends CEO Tom Lydon discussed the ERShares Non-US Small Cap ETF (ERSX) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show. [Note: ERShares announced a name changed for ERSX, as the fund is now the ERShares NextGen Entrepreneurs ETF effective February 5, however, this episode was recorded before said announcement.]
ERSX selects the most entrepreneurial, primarily Non-US Small Cap companies, that meet the thresholds embedded in their proprietary Entrepreneur Factor (EF). ERShares’ EF delivers strong performance across various investment strategies without disrupting investors’ underlying risk profile metrics. Their geographic diversity enables them to harness global advantages through additional returns associated with currency fluctuations, strategic geographic allocations, comparative trade imbalances, and relative supply/demand strengths.
As stated, it’s time to tap into the growth potential of international entrepreneurial companies at the forefront of innovation. Target next-generation leaders to enhance portfolios while targeting the entrepreneurship economy.
So, why focus on entrepreneurial companies? Founder-run entrepreneurial companies have shaped the economy by investing in its people and innovation leading to exceptional growth. Having the right Founder-CEO can make an important difference. The differential between the period with the Founder-CEO and without is approximately 7% in excess return.
Entrepreneurs typically provide the difference between success and failure and wealth creation versus wealth destruction. Disruptive Innovation moves at a rapid pace, and only the most capable leaders survive.
With that in mind, the Coronavirus pandemic helped put a spotlight on entrepreneurs. When most businesses were shutting down in 2020, entrepreneurs everywhere sprung into action to help global economies keep moving.
Investors noticed, with entrepreneurial companies up above 70% for the year. Entrepreneurial Companies were better able to shift gears to adapt to the new market environment, swiftly pivoting their strategies to protect people from the pandemic and support people to adapt to new living routines. They also led the way irrespective of market cap and geography, and the global companies pivoted well during uncertain markets and outperformed in bull markets.
There are fields that entrepreneurs are pushing into the future, with categories including cloud computing, nextgen transportation, digital economy, nextgen communication, green energy, 3D printing, fintech, interactive entertainment, e-commerce, nanotechnology, artificial intelligence, medtech, intelligent manufacturing, and genetic engineering poised to outperform in 2021.
Why International Stocks?
“Over the past 50 years, U.S. Markets have outperformed non-U.S. markets for periods of approximately 4-5 years before reverting, with non-U.S. markets dominating for a comparable period. However, we are now experiencing a period of 12-year dominance by U.S. Markets, which is about 2-3 times longer than typical,” Lydon states.
International small caps, in particular, have been out of favor for at least 10 years. This is long overdue for a correction – Mean reversion and valuations present an opportunity for long-term outperformance.
Looking at ERSX, ERShares’ ETF delivers strong performance across a variety of investment strategies without disrupting investors’ underlying risk profile metrics. The fund incorporates a bottom-up investment orientation, powered by artificial intelligence, that stands above other investment factors such as momentum, sector, growth, value, leverage, market cap (size), and geographic orientation.
With the aid of AI and Thematic Research, ERShares incorporates a macro-economic, top-down approach that integrates changing investment flows, innovation entry points, sector growth, and other characteristics into a dynamic, global perspective model.