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Tag: Small Caps

Small Caps Still Beckon. And They Don’t Have to Be Risky

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Small cap stocks are still worth considering, and investors don’t need to take on added risk with quality approaches like 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.

Small stocks have been hot for a while. They’re not flaming out anytime soon.

“However, despite short covering in the Russell 2000 Index over the past few reporting periods, I continue to see the small caps as heavily shorted, and thus the biggest area of opportunity if equities continue to advance,” writes Schaeffer’s Investment Research Vice President of Research Todd Salmone.

ERSX: A Prime Choice for Small Cap Exposure

ERSX tracks a fundamental-selected index of global small cap ex-US equities weighted by market capitalization. The fund’s index is benchmarked against the FTSE All-World Ex-US Small Cap Index, a market-capitalization weighted index representing small cap stocks’ performance in developed and emerging markets excluding the United States. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization.

ERSX 1 Year Performance

“Continuing with the small cap versus large cap theme, I was amazed when our own Quantitative Senior Analyst Chris Prybal put the chart below, together last week. It is the 10-day, equity-only put/call volume ratio on only components of the Russell 2000 Index,” adds Schaeffer’s.

Smaller companies are more levered to economic rebounds, enhancing the potential of ERSX this year. The ERShares ETF is also alluring because ex-US small caps are more attractively valued than domestic equivalents.

Up 60%, the Small Cap ERSX ETF Is Not Fazed by Last Week

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Small cap stocks lagged the broader market last week, but that doesn’t dent the case for exchange traded funds such as 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.

Some market observers believe last week’s small cap lethargy could give way to upside opportunity.

“After a fierce run, smaller-capitalization stocks were hit by profit-taking this week, amidst a spike in Treasury yields. But gains still lie ahead for small caps, which are supported by strong earnings growth and reasonable valuations, analysts say,” reports Jacob Sonenshine for Barron’s.

A Good Time to Consider ERSX?

As investors look for ways to position their portfolios for the months ahead, small cap stock ETFs can help jumpstart a new market cycle.

Small cap companies typically show an advantage over large- and mid-cap stocks during the initial stages of an economic expansion phase. Small cap stock performances are more correlated with U.S. GDP, so their financial performance may be more aligned with the initial U.S. economic expansion period. There are other reasons to consider ERSX.

“The higher rate of return on the risk-free bond makes owning stocks less attractive. Another problem: While typically, higher yields are positive harbingers of growth for smaller companies, which are more economically sensitive than larger ones, that’s when yields are rising gradually,” according to Barron’s.

Increased fiscal spending could also support a shift toward cyclical companies, which are more tied to the broader economic recovery. These smaller companies, banks, manufacturers, and commodity producers typically do better as the economy exits a recession.

ERSX tracks a fundamental-selected index of global small cap ex-US equities weighted by market capitalization. The fund’s index is benchmarked against the FTSE All-World Ex-US Small Cap Index, a market-capitalization weighted index representing small cap stocks’ performance in developed and emerging markets excluding the United States. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization.

ERSX 1 Year Total Return

Find Plenty of Potent Themes under One Umbrella with This ETF

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Many exchange traded funds check one box. Some check several. One that checks many relevant themes is 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.

Year-to-date, entrepreneurial companies are market leaders. That’s obviously one trait in favor of ERSX, but there’s more to the story.

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.

ERSX 1 Year Performance

More Reasons to Embrace ERSX

U.S. small- and mid-caps have it easier than their international peers. Smaller U.S. companies benefit from operating in one of the easiest countries for commerce. The United States regularly places near the top in the World Bank’s annual rankings of countries for its ease of doing business. The companies have access to a population of 330 million consumers who principally speak one language, and they operate one set of national laws and regulations.

Small cap companies typically show an advantage over large- and mid-cap stocks during the initial stages of an economic expansion phase. Small cap stock performances are more correlated with U.S. GDP, so their financial performance may be more aligned with the initial U.S. economic expansion period.

The ERSX ETF tracks a fundamental-selected index of global small cap ex-US equities weighted by market capitalization. The fund’s index is benchmarked against the FTSE All-World Ex-US Small Cap Index, a market-capitalization weighted index representing small cap stocks’ performance in developed and emerging markets excluding the United States. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization

On measures such as return on equity measures, international small- and mid-sized (SMID) companies are higher quality. They have been trading on average at a 40% discount to US small- and mid-caps. Yet investors have not taken advantage of this opportunity.

ERSX: A One-Stop ETF to Rectify Domestic Bias

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Investors often have a domestic basis, particularly with small cap stocks. They can help rectify large cap, domestic tendencies with 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.

Data confirm U.S. investors are under-allocated to international small caps.

“International Mid/Small-Cap stocks market value is 6% of the total world’s equity market, but US investors’ allocation is just 1.6% in mutual funds to this asset class,” according to Seeking Alpha.

ERSX 1 Year Performance

ERSX Perks

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.

“One reason US investors should consider international stocks at this time is the trade-weight value of the USD is declining, which benefits international stocks,” adds Seeking Alpha.

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.

International small caps have “generated annual returns of only 6.7% for the past 10 years compared to 14% for the U.S. Large Company Index (per IFA data). However, valuations are attractive and there are two emerging catalysts that could propel the sector to outperform U.S. large caps in the coming years,” notes Seeking Alpha.

International small caps are generally export-oriented, globally structured, innovative, and have a high to dominant share of a niche market, often one in which the U.S. counterparts don’t compete effectively.

The Small Cap ERSX ETF: Hidden Gems Lie Abroad

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Investing in international small caps can be an exercise in finding hidden gems. The ERShares NextGen Entrepreneurs ETF (ERSX) makes that work easier.

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 ERShares ETF is useful for gaining exposure to an often overlooked asset class.

“Despite U.S. investors’ being very comfortable with international investing, small-cap companies (market cap of $300 million-$2 billion) outside the United States have generally flown under the radar. Yet upon closer review, they stand out for several attractive reasons,” reports Investment News. “For starters, of the more than 6,000 publicly traded global small-cap stocks, only about 2,000 are domiciled in the U.S., while two-thirds are based abroad. And a large proportion of those companies are in developed and emerging countries with established markets and liquidity. This represents an extremely large and deep pool of companies that many U.S. investment portfolios simply aren’t exposed to.”

ERSX 1 Year Holdings

The Right Way to Small Caps?

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.

“International small caps, while generally considered riskier than the other parts of equity markets, also exhibit lower correlations to other asset classes, including to their U.S. counterparts. This may be viewed as both an attractive and particularly timely characteristic that can help U.S. investors prepare for the inevitable rise in interest rates and the potential resulting market turbulence, provided they’re willing to look beyond the U.S. and take advantage of the opportunities globally,” adds Investment News.

ERSX Holdings

Are Your Small Cap ETFs Truly ‘Entrepreneurial’?

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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

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

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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

Why You (Still) Shouldn’t Sleep on Small Caps

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Recent lethargy in smaller stocks could spell opportunity some investors looking to assets like 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.

Amid rising Treasury yields, smaller stocks briefly fell out of favor, but the 2021 set-up for the asset class remains compelling.

“Small-cap stocks have had a remarkable run during the pandemic. As a result of this growth, many traders have been left to question whether or not this trend will continue in the months ahead,” notes Schaeffer’s Investment Research. “According to Todd Salamone, the technical picture of Russell 2000 and ETFs like the iShares Russell 2000 ETF (IWM) does suggest that the rising trend will likely continue.”

ERSX 1 Year Total Return

Smaller Can Be Better

The small cap category has underperformed its large cap peers, notably those mega cap tech companies that benefited in the post-coronavirus environment. However, a broader market rally has helped small caps outperform in 2021, and even outpace the tech-heavy Nasdaq. Even with recent weakness, small caps are topping large- and mid-caps this year.

“Speaking on small caps holistically, Salamone singled out the iShares Russell 2000 ETF (IWM) as offering diverse exposure to the small cap segment. The ETF is comprised of stocks throughout 11 different sectors, with the five biggest areas of exposure being a mix of growth and value segments like health care (the largest), consumer cyclicals, industrials, financial services, and technology (the smallest),” notes Schaeffer’s.

ERSX isn’t a traditional 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.

The ERSX ETF: International Small Caps Coming Into Their Own

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Investors usually love domestic small caps. They can wade into their international equivalents with 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.

ERSX offers plenty of benefits in the current climate.

Small cap companies’ nimble nature may position them to quickly evolve to take advantage of structural economic changes. Simultaneously, value stocks have the potential to outperform growth stocks during economic recoveries, with value-oriented industries tapping into pent-up demand created by the pandemic.

ERSX 1 Year Total Return

Global Pockets of Opportunity

With some long-running market trends poised to reverse this year, ERSX is all the more appealing.

“We’d be remiss to ignore the valuation profile of international small-cap value as well. Despite the attention they’ve earned this year, coupled with an impressive performance record, small-cap value stocks around the world still trade at comfortable discounts to their large-cap peers. That tells us that investors are not yet as serious about small caps as they should be, which creates an advantageous opportunity,” according to WisdomTree research.

Increasing the allure of ERSX, international small caps are generally export-oriented, globally-structured, innovative, and have a high to dominant share of a niche market, often one in which the U.S. counterparts don’t compete effectively.

Looking ahead, 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.

“Even with their auspicious start to the year, international small caps are still lagging U.S. small caps, so the inexpensive valuations of the former should reassure you that they may still have room to rally further without fear of overpaying,” adds WisdomTree.

When Small Cap Factors Matter, Turn to the ERSX ETF

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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.”

ERSX 1 Year Total Return