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.”

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.