Is this the year for small-caps to strike back? High interest rates have taken a bite out of smaller companies, which often rely more on financing. Especially in the tech space, many smaller firms need financing to scale up over time.
Many investors may be waiting for potential rate cuts to give small-caps a boost. But small-cap indexes like the Russell 2000 aren’t waiting. A quality small-cap ETF like OUSM, which is on a hot tech chart streak, could ride a blossoming small-cap turnaround.
Even as some investors take a “wait-and-see” approach to small-caps, the Russell 2000 has returned 10.3% over the last three months. That’s a slightly better return than it offered over the last year, per YCharts, at just 6%. That’s a solid return for an equities tranche written off by some. That said, it remains a distance from what investors might want from small-caps if rates were cut.
Getting in now, however, could help given that small-caps remain so cheap. Enter the ALPS O’Shares US Small-Cap Quality Dividend ETF (OUSM ). It tracks the O’Shares US Small-Cap Quality Dividend Index, for a 48 basis point (bps) fee. In doing so, it seeks out small-cap firms weighted for quality, low volatility, high dividend yield, and dividend quality factors.
A Quality Small-Cap ETF Approach
By using metrics like ROA and EBITDA as well as trailing volatility and dividend payouts, it looks for the small-cap firms that meet its quality standards. That can help the strategy avoid smaller firms facing balance sheet issues or that just might be too volatile. In doing so, the quality small-cap ETF has outperformed the Russell 2000 over the last year, returning 11.9% in that time.
Perhaps most intriguingly, the ETF is on a tech chart hot streak. It recently saw a “golden crossover” in which its 50-day simple moving average (SMA) surpassed its 200-day SMA. The quality small-cap ETF’s price remains above both those metrics and looks like a hot option for curious investors looking to small-caps.
vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for OUSM, for which it receives an index licensing fee. However, OUSM is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of OUSM.
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