On the lookout for a new ETF to ride rate cuts arriving as soon as next month? It may be worth going for a small-mid cap ETF with an active view. Such a strategy could combine the benefits of active with a view into smaller firms with upside. Given how many investors are likely overweight large caps, getting into smaller firms could appeal. What’s more, those small firms could have an outsized sensitivity to rate cut effects compared to larger firms.
The Merits of an Active SMIDcap ETF During Rate Cuts
The Neuberger Berman Small-Mid Cap ETF (NBSM ), then, could draw investor attention as an active small-mid cap ETF. Launched just this year, NBSM has already gathered nearly $200 million in AUM. The strategy has done so mostly thanks to its net inflows. The fund charges a 74 basis point (bps) fee for its approach, placing it in the traditional fee range for active funds.
The active small-mid cap ETF looks to provide investors with capital appreciation by investing in the kind of firms found in the Russell 2000 or Midcap Index. NBSM looks for undervalued firms with strong positions, using bottom-up analysis to identify firms believed to be valued below their intrinsic worth. Its active managers do so by looking at factors like barriers to entry, historical returns, and established business operations.
That approach has helped NBSM return 2.8% against it price since inception. The fund, then, could be positioned to be supercharged by rate cuts. Rate cuts may disproportionately help smaller and middle-sized firms which have to borrow more at the outset as they look to grow. An active manager for a fund like NBSM could sift through firms with its fundamental analysis to find those best positioned to benefit. For those investors looking to add an active, small-mid cap ETF, NBSM could stand out.
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