Concentration risk may be the key problem for investors this year. With government policy changes still up in the air, investor overreliance on just a few big tech names presents the biggest issue for any portfolios. To address that concentration risk, then, investors and advisors may want to consider investing in small- and midcap firms (SMIDcap firms, for short). A quality SMIDcap ETF like SMOT, for example, could identify smaller companies poised to perform even amid a volatile market.
See more: This Value ETF Duo Is Ready to Take 2025 by Storm
The VanEck Morningstar SMID Moat ETF (SMOT ) launched in October 2022. On course for its three-year ETF milestone this fall, the fund charges a 49 basis point fee for its approach. The ETF sets itself apart from other small- and midcap funds by emphasizing those companies with “moats.”
Specifically, SMOT tracks an index of two equally-weighted groups of small- and midcap firms. It aims to identify and invest in those firms with sustainable advantages, and breaks that universe of potential candidates down into “narrow” and “wide” moat firms. Narrow moat firms are those with anticipated competitive advantages lasting at least ten years. Wide moat firms see that number set at twenty. The small- and midcap subgroups together include some 150 firms.
That approach has helped SMOT return 3.3% YTD, beating both its FactSet Segment and ETF Database Category averages. Looking longer term, the strategy has also returned 11.9% over one year.
2025 could provide just the right events needed to spark the fund into a strong satellite role in portfolios. By leaning on smaller firms that meet strong competitive advantage standards, it can help diversify while avoiding potentially weak, small names. For those looking at their domestic options to address concentration risk, SMOT presents a medium term option worth considering.
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