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The Gains Are Abroad. And Not Where You Might Think

 

Data confirm investors are pouring cash into international equity funds, a scenario that bodes well for the ERShares NextGen Entrepreneurs ETF (ERSX).

ERSX selects the most entrepreneurial, primarily Non-US Small Cap companies, that meet the thresholds embedded in its proprietary Entrepreneur Factor (EF). ERShares’ ETF delivers compelling performance across a variety of investment strategies without disrupting investors’ underlying risk profile metrics. Their geographic diversity enables them to harness global advantages through additional returns associated with currency fluctuations, strategic geographic allocations, comparative trade imbalances, and relative supply/demand strengths.

The unique factor strategy offered by ERSX is ideally suited for investors looking to capitalize on both growth and value opportunities found with ex-U.S. smaller stocks.

“International exchange-traded funds are back in favor,” reports Ari Weinberg for the Wall Street Journal. “The turnaround has been building for months. Following the summer 2020 rally for U.S. stocks, interest in international developed- and emerging-markets stocks picked up in November and December and has surged through February. According to FactSet, international-stock ETFs (excluding “global” funds, which have U.S. exposure), have gathered $31 billion in net new assets in the first two months of this year, compared with $30 billion for all of 2020.”

ERSX 6 Month Total Return

With International Stocks, the Factors Matter

Getting international exposure is a great way to pull in uncorrelated market movements. But at a time when a pandemic has the whole world in its grasp, it becomes quite the challenge.

Many ex-U.S. markets are considered value destinations. ERSX offers quality/value tilts with several of its components holdings.

“The International Monetary Fund is projecting 5.5% global GDP growth in 2021, with growth in emerging markets and developing economies as a group projected at 6.3%, led by India (11.5%) and China (8.1%). Among developed economies, Spain (5.9%), France (5.5%) and the U.K. (4.5%) are expected to grow at a faster pace than the projected 4.3% for advanced economies as a whole. (The IMF estimates U.S. GDP growth at 5.1% in 2021.),” according to the Journal.

Small cap investors already know that looking at equities outside the large cap universe can yield substantial gains, but one area they may not have considered is looking abroad.

ERSX isn’t any old small cap ETF. It blends domestic and international exposure, which is relevant at time when many markets are betting international smaller stocks will top U.S. equivalents. Non-U.S. equities are poised to take flight, and it’s possible that this asset class is in for a substantial period of out-performance.


ENTR’s Quality Growth Proposition Is Getting More Attractive

 

Amid raucous market action, the bulk of which is being caused by rising Treasury yields, the ERShares Entrepreneurs ETF (ENTR) is becoming more attractive on the basis of price, while its underlying fundamentals remain sound.

ENTR tries to reflect the performance of the Entrepreneur 30 Index, which is comprised of 30 U.S. companies with the highest market capitalizations and composite scores based on six criteria referred to as entrepreneurial standards. ENTR primarily invests in US Large Cap companies that meet the thresholds embedded in their proprietary Entrepreneur Factor (EF).

See also: The Entrepreneur Factor: Distinguishing Characteristics of Dynamic, Disruptive Investing

There has been a significant shift in how companies conduct business over the last year, with many corporations transitioning their employees to the home as more stringent regulations become commonplace. With this shift comes a need for innovation, with companies like Ring, Crowdstrike, Tesla, and Fiverr embracing an entrepreneurial mindset. Investors looking to get in on the action can look to the issuer ERShares.

ERShares selects companies from all over the globe and across capitalization levels to create an eclectic and well-balanced mix in its funds.

ENTR 6 Month Total Performance

ENTR Standing Out from the Crowd

ENTR is comprised of 30 U.S. companies with the highest market capitalizations and composite scores based on six criteria referred to as entrepreneurial standards. The fund has exhibited excess return potential by taking into consideration factors that account for alpha generation, such as growth, size, momentum, and value, among others.

“Investors, or academics, that presume we are simply a ‘growth play’ or ‘momentum play’ are often surprised to discover that our Entrepreneur Factor is not only significant in explaining historical returns, but over the past 12 years has been, by far, the most significant factor,” according to the issuer. “The selection effect (Entrepreneur Factor) actually compensates for all the other factors, which in aggregate are actually negative during the time period. This is why the selection effect is even higher than the excess return itself.”


Are Your Small Cap ETFs Truly ‘Entrepreneurial’?

 

Even with some recent weakness in equities, small caps and foreign stocks remain appealing. That script underscores the continued allure of the ERShares NextGen Entrepreneurs ETF (ERSX).

ERSX selects the most entrepreneurial, primarily Non-US Small Cap companies, that meet the thresholds embedded in its proprietary Entrepreneur Factor (EF). ERShares’ ETF delivers compelling performance across a variety of investment strategies without disrupting investors’ underlying risk profile metrics. Their geographic diversity enables them to harness global advantages through additional returns associated with currency fluctuations, strategic geographic allocations, comparative trade imbalances, and relative supply/demand strengths.

ERSX 1 Year Total Return

“The year-to-date return for small-caps through the end of February was a remarkable 25 percentage points greater than that of large-caps (as measured by the 20% of stocks with the smallest market caps vs. the comparative quintile of the largest),” reports Mark Hulbert for the Wall Street Journal. “While it isn’t unexpected for small-cap portfolios to beat large-caps over time—a long-term tendency that Wall Street analysts refer to as the ‘size effect’—what is unusual is the magnitude of the outperformance. It has averaged just 0.9 percentage point over all two-month periods since 1926, according to data from Dartmouth professor Ken French.”

The unique factor strategy offered by ERSX is ideally suited for investors looking to capitalize on both growth and value opportunities found with ex-U.S. smaller stocks.

ERSX Leadership

Why focus on entrepreneurial companies? Founder-run entrepreneurial companies have shaped the economy by investing in its people and innovation leading to exceptional growth. Having the right Founder-CEO can make an important difference. The differential between the time period with a Founder-CEO and without is approximately 7% in excess return.

See also: The Small Cap ERSX ETF: Finding Hidden Gems Abroad

“Indeed, according to several researchers, small-caps’ recent strength may actually be something else in disguise—that is, it may have to do with factors other than just size, such as the battle between growth and value stocks,” according to the Journal.

Entrepreneurial companies were better able to shift gears to adapt to the new market environment, swiftly pivoting their strategies to protect people from the pandemic and support people adapting to new living routines. They also led the way, irrespective of market cap and geography. Many global companies also pivoted well during uncertain markets and outperformed in bull markets.

ERSX Holdings


Believe It or Not, But Growth May Be the Real Value Destination

 

Suddenly, value stocks are generating plenty of buzz, some at the expense of their growth rivals. However, not all value stocks are good values. Investors can avoid the pitfall of value traps with the ERShares Entrepreneurs ETF (ENTR).

ENTR tries to reflect the performance of the Entrepreneur 30 Index, which is comprised of 30 U.S. companies with the highest market capitalizations and composite scores based on six criteria referred to as entrepreneurial standards. ENTR primarily invests in US Large Cap companies that meet the thresholds embedded in their proprietary Entrepreneur Factor (EF).

ERShares founder Joel Shulman “advises listeners to be careful in buying traditional value stocks at this time. Prospective buyers should be wary of the price levels for debt-rich, declining margin, ‘value stocks’ that are at risk for a major price correction,” according to the issuer.

ENTR 3 Year Total Return

The Growth vs. Value Debate

Growth stocks are often associated with high-quality, prosperous companies whose earnings are expected to continue increasing at an above-average rate relative to the market. Growth stocks generally have high price-to-earnings (P/E) ratios and high price-to-book ratios. Still, data suggest the growth/value premium isn’t overly elevated relative to historical norms.

Some “traditional, value stocks that have also reached high levels while simultaneously flirting with bankruptcy (Avis, etc). Shulman believes that growth stocks will bounce back,” notes ERShares.

Growth stocks may be seen as exorbitant and overvalued, causing some investors to favor value stocks, which are considered undervalued by the market. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.


Why Non-U.S. Small Caps Are Compelling Long-Term Investments

 

International small caps are one of the most overlooked asset classes in the ETF investing space. The ERShares NextGen Entrepreneurs ETF (ERSX) is showing investors exactly why this group shouldn’t be ignored.

ERSX selects the most entrepreneurial, primarily Non-U.S. Small Cap companies, that meet the thresholds embedded in its proprietary Entrepreneur Factor (EF). ERShares’ ETF delivers compelling performance across a variety of investment strategies without disrupting investors’ underlying risk profile metrics. Their geographic diversity enables them to harness global advantages through additional returns associated with currency fluctuations, strategic geographic allocations, comparative trade imbalances, and relative supply/demand strengths.

“For several years, investors have done well by focusing on megacaps. But over the long term, foreign small- and midsize companies—or ‘smid’—have outperformed other types of companies, particularly in Europe and Japan,” reports Reshma Kapadia for Barron’s.

The Case for ‘ERSX’

International equities have increasingly become an attractive option for investors looking to generate income and pursue higher total return potential. Investors may want to take cues from institutional players today and not wait until 2022 for international allocations.

“In addition to being well-positioned for a recovery, the relative valuation for global SMID stocks is also attractive,” adds Barron’s. “Those foreign stocks are typically cheaper than their U.S. counterparts. Picking small- or midsize stocks can be hard in the U.S.—and even more difficult abroad—so a diversified, index-based approach may be easier for investors.”

Building wealth can be a painstaking process in a world where most are seeking immediate returns. Yet for those brimming with discipline, small increments allocated toward small cap strategies can pay off in the long run.

While small cap value appears to be solidifying, that doesn’t mean small cap growth is going to lag. Fortunately for investors, the ERShares ETF addresses both factors.

ERSX 1 Year Performance


ERSX: A Formidable Small Cap Stimulus Bet

 

Americans are already receiving their stimulus checks from Uncle Sam. Many market observers believe all the cash will lead investors into riskier assets.

It’s probable that many investors will allocate stimulus cash to high growth names, a theme that could benefit the ERShares NextGen Entrepreneurs ETF (ERSX).

ERSX selects the most entrepreneurial, primarily Non-U.S. Small Cap companies, that meet the thresholds embedded in its proprietary Entrepreneur Factor (EF). ERShares’ ETF delivers compelling performance across a variety of investment strategies without disrupting investors’ underlying risk profile metrics. Their geographic diversity enables them to harness global advantages through additional returns associated with currency fluctuations, strategic geographic allocations, comparative trade imbalances, and relative supply/demand strengths.

“On the one hand a massive cash infusion piled on top of an already recovering economy will continue to stoke inflationary fears. Casualties to inflationary concerns include both bonds and equities, with the latter being punished for higher discount rates applied to distant cash flows,” said ERShares COO and Chief Investment Officer Eva Ados in a Bloomberg interview. “Offsetting market selling pressures associated with inflation (primarily by institutional investors), we are likely going to also experience a hearty infusion of retail (day traders) investors who will attempt to parlay their newfound largesse into a larger windfall.”

ERSX 1 Year Performance

Another Catalyst for ERSX?

With small caps already strong, ERSX doesn’t necessarily need the benefit of stimulus cash, but it makes for a sound destination for investors with long-term outlooks due to its exposure to healthcare and technology stocks with growth profiles.

One of the highlights of small cap equity investing is the ability to capitalize on value-added growth companies that can provide room for more future gains. On the opposite end of the spectrum, large cap equities like big tech stocks may have already reached their peaks.

“We believe the strongest gains will accrue to recently beat-up high flying growth stocks (including popular ADRs) with heavy concentrations in the Technology and Health Care sectors,” said Ados. “Growth stock gains should dominate inflationary fears for much of next week, though interest rate spikes (especially among the price sensitive 10-year bond), could delay a tech recovery for an extended period of time.”


Why Growth Is Offering More Value than Meets the Eye

 

For the first time in what feels like an eternity, value stocks are topping their growth rivals, but investors can avoid value clunkers and bet on a growth trajectory with the ERShares Entrepreneurs ETF (ENTR).

The ERShares fund is worth a look over the near-term because its growth stocks are offering surprising levels of value.

“With the market keeping a keen eye on interest rates and its focus on punishing high-flying growth stocks with every basis point increase in the 10-year treasury, it’s sometimes useful to take a step back and examine the big picture,” said ERShares founder Joel Shulman in a recent note. “While it’s true that stocks, of all kinds (growth and value), are fundamentally priced based on discounted future cash flows, it should not necessarily be true that growth stocks should receive a steeper drop in price with rising interest rates. While the basic math of reducing today’s stock price based on discounting future cash flows at a higher rate cannot be denied, neither can the fact that the PRIMARY driver in growth stock valuation is the GROWTH itself.”

ENTR tries to reflect the performance of the Entrepreneur 30 Index, which is comprised of 30 U.S. companies with the highest market capitalizations and composite scores based on six criteria referred to as entrepreneurial standards. ENTR primarily invests in US Large Cap companies that meet the thresholds embedded in their proprietary Entrepreneur Factor (EF).

ENTR All Time Performance

ENTR: A Prime Avenue for the Growth Rebound

“When businesses enter their hyper-growth phase, they enter an extremely uncertain period and seasoned analysts should already discount future cash flows at an appropriate level corresponding to the risk,” adds Shulman.

“The key drivers to the valuation of growth stocks correspond overwhelmingly to the top-line revenue growth (that can exceed 100% rate per year) and should not, from the same mathematical perspective be affected by relatively immaterial or insignificant 5-10 basis point increases in a discount rate.”

The bottom line is thus: recent weakness in growth stocks may be an overreaction to rising Treasury yields.


Take an Entrepreneurial Approach to the Hot Corner of Healthcare

 

Growth stocks may be out of favor, but that may allow investors to snag favorable pricing on industries with excellent growth prospects.

One of those industries is genomics, which is forecast to grow in significant fashion over the next decade. Investors can get in on the action without direct commitment with the ERShares Entrepreneurs ETF (ENTR).

ENTR tries to reflect the performance of the Entrepreneur 30 Index, which is comprised of 30 U.S. companies with the highest market capitalizations and composite scores based on six criteria referred to as entrepreneurial standards. ENTR primarily invests in US Large Cap companies that meet the thresholds embedded in their proprietary Entrepreneur Factor (EF).

Biotech and genomics companies such as Crispr, Intellia, Twist Biosciences, Veracyte, and Editas have more than quadrupled year-to-date.

Genomics’ Long Runway for Growth

Genomics companies try to better understand how biological information is collected, processed, and applied by reducing guesswork and enhancing precision. The industry is a booming market with epic potential for investors.

Rising government funds for research on genomics have driven the growth of the single-cell genomics market. The funding focuses on efforts to resolve the complexity of the human genome and the genomic basis of human health and disease. It also ensures that genomics is used safely to enhance patient care and benefit society through government, public, and private institutions.

According to “Genomics Market – Growth, Trends, and Forecasts (2020-2025),” exponential growth in the space is expected within the next five years.

“The Genomics market studied was anticipated to grow with a CAGR of 9.3%, during the forecast period,” a press release on the report noted. “The major factors attributing to the growth of the genomics market are growing government support and increased number of genomics studies, declining sequencing cost, increased genomics applications. The genomics market is geared to exponential growth as a result of the essential genetic developments and also because of its applications in numerous areas of study, such as intragenomic phenomena like epistasis, heterosis, pleiotropy, and other associations within the genome between alleles and loci. And there are few more factors which are playing crucial roles in taking the genomics market to the next level, among them one is on-bioengineering and synthetic biology applications which are expected to further propel the growth of the genomics market.”

ENTR 1 Year Performance

 


Inflation Isn’t the Only Reason Rates Are Rising

Market participants are getting a steady diet of the rising Treasury yields story, and much of the rationale for the spike implicates increasing inflation expectations.

However, that may not be the only reason, and a deeper examination reveals that if rising inflation proves more muted than some market observers believe, growth stocks and funds, such as the ERShares Entrepreneurs ETF (ENTR), could soon be back in favor.

“Multiple factors can affect interest rates, and inflation may not be the problem. Interest rate increases could be the result of foreigners selling U.S. treasuries,” said ERShares COO and Chief Investment Strategist Eva Ados. “Moreover, with each sale pushing bond prices downward, we might experience the triggering of stop-loss sales, which further exacerbate price drops/yield increases. We should bear in mind that $7T of U.S. debt is held by foreign buyers $1T each held by China and Japan, and China sold bonds the last five months of 2020.”

ENTR tries to reflect the performance of the Entrepreneur 30 Index, which is comprised of 30 U.S. companies with the highest market capitalizations and composite scores based on six criteria referred to as entrepreneurial standards. ENTR primarily invests in US Large Cap companies that meet the thresholds embedded in their proprietary Entrepreneur Factor (EF).

ENTR 1 Year Total Return

Inflation Not as Hot as Some Think

Amid more chatter about inflation, some investors think the situation is increasingly worrisome, but other data points indicate otherwise.

“Inflation is currently running below 2.4% and should not be the problem going forward. Even if GDP growth is expected to reach 6.5% this year, there are still 9.5M Americans out of work and plenty of distressed industries with companies that may not survive past Q2,” notes Ados.

“Considering the nature of tech rise, growth could be the new Value. The overreaction to growth a few weeks back could now have shifted to an overreaction to value stocks. Ados believes that entrepreneurial growth companies now offer superior potential upside compared to value stocks,” concludes ERShares.


Why It Pays to Invest in Entrepreneurial Firms

 

Growth stocks are suddenly on sale, and with that scenario comes opportunity for investors to embrace entrepreneurial companies at discounts. There’s an ETF for that: the ERShares Entrepreneurs ETF (ENTR).

ENTR tries to reflect the performance of the Entrepreneur 30 Index, which is comprised of 30 U.S. companies with the highest market capitalizations and composite scores based on six criteria referred to as entrepreneurial standards. ENTR primarily invests in US Large Cap companies that meet the thresholds embedded in their proprietary Entrepreneur Factor (EF).

See also: Add ‘Entrepreneurship’ to the Investment Factor Debate

History proves there are compelling reasons to invest in fashion similar to ENTR, or better yet, own the fund itself.

ENTR’s Recipe for Success

Many entrepreneurial firms are concentrated in the consumer discretionary and technology sectors, cementing ENTR’s growth feel.

ENTR 1 Year Total Return

There has been a significant shift in how companies conduct business over the last year, with many corporations transitioning their employees to the home as more stringent regulations become commonplace. With this shift comes a need for innovation, with companies like Ring, Crowdstrike, Tesla, and Fiverr embracing an entrepreneurial mindset. Investors looking to get in on the action can look to ERShares.