Market lore is littered with tales of small-cap companies becoming large-caps, generating significant returns for early investors along the way. Those tales often tempt new investors to embrace smaller stocks, including some on the more speculative side of the ledger.
And while there was a time many companies went public as small-caps, gradually moving up the market capitalization ladder, more firms are opting to stay private longer, coming to market as large- and mega-cap entities. Some experts believe that’s been a drag on small-cap quality. Add it all up and it’s fair to investing in individual small-caps offers substantial reward and risk.
For many investors, the better course of action is to consider an ETF such as the Invesco NASDAQ Future Gen 200 ETF (QQQS ). The Invesco ETF, which tracks the Nasdaq Innovators Completion Cap Index, is following more traditional small-cap funds and indexes to the upside this year.
Speaking small-caps and tradition, QQQS is a departure from old guard small-cap funds because its index “consists of 200 small-cap companies with the most valuable patent portfolios relative to their total market value as deemed by Nasdaq,” according to Invesco.
QQQS Advantages
This ETF’s leverage to robust patent portfolios indicates investors aren’t just buying a basket of stocks residing in the growth style box, but they’re accessing companies with credible growth traits, which is critical as those firms inch towards profitability.
“Valuable patents may be an indicator of competitive advantages and potential future revenue growth,” added Invesco.
Those patents could also make some QQQS member firms attractive to prospective suitors. On a related note, about 71% of this ETF’s 201 holdings hail from the healthcare and technology sectors – patent-rich sectors that are often homes to legitimate takeover targets. All that said, some QQQS holdings have value traits, which is an added benefit for patient investors.
“Investors who’d like to tilt their portfolios toward small-cap stocks (or those who may simply find their portfolios light on smaller names) but don’t want to pick individual stocks have several top exchange-traded funds to choose from,” according to Morningstar. “To participate in the small-cap stock revival, we suggest investors favor ETFs that hold stocks with both growth and value characteristics; that way, you’re getting a piece of the action no matter which style leads.”
The average market value of QQQS holdings is $2.36 billion and none of those stocks exceed a weight of 1.13%.
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