While basic indexes provide pure beta exposure to small cap equities, investors can enhance their outcomes with unique strategies like the ERShares International Equity ETF (NYSEARCA: ERSX).
ERSX tracks 50 non-U.S. companies from around the world with market capitalizations between $300 million and $5 billion USD and the highest ranks based on the six investment style factors.
ERSX’s unique methodology is proving meaningful for investors. That’s important because smaller companies often sport higher leverage and are more rate-sensitive than their large cap counterparts. Bolstering the case for ERSX are improving small cap earnings revisions, implying the group has some earnings momentum.
Investors can still enhance their portfolios as the bull market extends with growth-oriented stocks that continue to perform despite the recent bouts with volatility. 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.
Additionally, we’re now in the best six-month period in which to own stocks, a time frame that has historically favored small cap equities. Investors looking to engage with smaller stocks with less risk and higher income opportunities can consider ERSX.
Lastly, ERShares uses a deep factor-based approach to unearth opportunities with international small cap names.
“We incorporate a proprietary investment model which applies a global, bottom-up, and top-down filtering process. Our ‘entrepreneur’ factors utilize both qualitative and quantitative criteria,” according to ERShares. “We apply our criteria to identify publicly traded entrepreneurial companies. History has shown that our model is effective across different market caps and geographical locations. We focus on management and leadership.”
