ETFdb Logo
  • ETF Database
  • Channels
    • Themes
      • Active ETF
      • Alternatives Channel
      • Artificial Intelligence
      • China Insights
      • Climate Insights
      • Core Strategies
      • Crypto
      • Disruptive Technology
      • Energy Infrastructure
      • ETF Building Blocks
      • ETF Education
      • ETF Investing
      • ETF Strategist
      • Faith-Based Investing
      • Financial Literacy
      • Fixed Income
      • Free Cash Flow
      • Innovative ETFs
      • Invest Beyond Cash
      • Leveraged & Inverse
      • Modern Alpha
      • Portfolio Strategies
      • Tax Efficient Income
    • Asset Class
      • Equity
        • U.S. Equity
        • Int'l Developed
        • Emerging Market Equities
      • Alternatives
        • Gold/Silver/Critical Materials
        • Crypytocurrency
        • Currency
        • Volatility
      • Fixed Income
        • Investment Grade Corporates
        • US Treasuries & TIPS
        • High Yield Corporates
        • Int'l Fixed Income
    • ETF Ecosystem
    • ETFs in Canada
    • Market Outlook
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Database Categories
    • Indexes
    • Scenario Analysis
    • Watchlists
    • Head-To-Head ETF Comparison Tool
    • Mutual Fund To ETF Converter
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • Gaining Perspective Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Modern Alpha Channel
  2. Small-Caps an Enticing Buy With Tailwind Potential
Modern Alpha Channel
Share

Small-Caps an Enticing Buy With Tailwind Potential

Karrie GordonOct 12, 2022
2022-10-12

Small-caps are often to the first to take a hit in markets when concerns of recession rise to the surface, and while this year hasn’t been any different, the degree to which small-caps have been discounted remains disproportionate to their mid- and large-cap peers. This could provide continued opportunity for investors, particularly as the strong dollar drives investor focus towards domestic stocks, creating a potential tailwind for U.S. small-caps.

The Russell 1000 Index, which is comprised of U.S. large-caps, is currently sitting at a forward price-to-earnings ratio of 17.0x, slightly above its 20-year median of 16.5×. The Russell 2000 Index, which is comprised of U.S. small-caps, has a 20-year median of 17.2x, but its forward P/E is just 11.9×.

“It seems clear that fears of a near-term recession in the U.S. have had an outsized impact on the valuations of small caps relative to the broader market. While some of this repricing is likely warranted, given small caps’ historical volatility and sensitivity to economic growth, valuations relative to large caps are now less than two standard deviations below their long-term (20-year) average,” explained Andrew Okrongly, director, model portfolios at WisdomTree in a recent blog post.

The strong dollar is beginning to have outsized impacts on companies that do business overseas, predominantly large-cap companies within the technology, materials, and consumer staples sectors, while companies from real estate, utilities, and financials remain more concentrated domestically.

Wisdomtree MSCI USA Sector

Image source: WisdomTree blog

“For investors seeking a level of protection from a stronger greenback and uncertainties abroad, U.S. small caps may help shield portfolios from these risks at attractive current valuations,” Okrongly wrote.


Content continues below advertisement

Small-Cap Investing Two Ways

The WisdomTree U.S. SmallCap Fund (EES B+) offers broad exposure to U.S. equity small-cap companies and seeks to track the WisdomTree U.S. SmallCap Index. The index is fundamentally weighted based on aggregate earnings of small-cap companies, and companies must have a P/E ratio of at least two for inclusion.

Companies included in the index must have the four most recent consecutive fiscal quarters exhibit positive cumulative earnings, and sector representation is capped at 25% (real estate is capped at 15%). The fund invests 95% of its assets in the index or similar securities under normal conditions and has an expense ratio of 0.38%.

The WisdomTree U.S. SmallCap Dividend Fund (DES A-) seeks to track the WisdomTree U.S. SmallCap Dividend Index, an index comprised of the bottom 25% of dividend-paying companies by market cap that make up the WisdomTree U.S. Dividend Index after the 300 largest companies have been removed. The index is fundamentally weighted based on dividend projections for the next year, and DES carries an expense ratio of 0.38%.

wisdomtree-small-cap-PE

Image source: WisdomTree blog

For more news, information, and strategy, visit the Modern Alpha Channel.

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2025 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X