Investors facing market uncertainty may consider diversifying portfolios amid potential rate cuts. Ed Egilinsky discusses small-caps, Magnificent Seven exposure, and growth opportunities. Leveraged and inverse ETFs are available for sector trading, including tech and gold. With geopolitical risks and the election approaching, investors have options for expressing short-term views.
Investors increasingly seek alternatives amid market volatility. Managed futures, once limited to select investors, gained wider appeal through ETFs like the iMGP DBi Managed Futures Strategy ETF (DBMF). This approach replicates top hedge fund performance, offering diversification and low correlation to stocks and bonds, with 6.95% YTD returns as of 08/14/2024.
Investors are closely monitoring potential rate cuts this fall and their impact on small caps. Quality small caps with strong data points may benefit from rate cuts, making the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM) an appealing investment. OUSM’s focus on dividends and quality metrics has led to strong performance, outperforming standard rate-sensitive small cap ETFs.
Investors are questioning the effectiveness of value investing, despite its critical role in economic transactions. The current market favors sellers, with minimal concern for valuation. However, undervalued stocks present a generational investment opportunity, as demonstrated by historical data and stretched valuations. This indicates a significant potential for long-term returns.
The iShares Russell Top 200 Growth ETF (IWY) holds a portfolio of top 200 growth stocks in the Russell 1000 index, with a high exposure to technology stocks. Its total return has surpassed the S&P 500 index and Vanguard Growth ETF. While it has potential for long-term outperformance, its valuation is not cheap, warranting caution for conservative investors.
Amazon’s performance has lagged the S&P 500 despite strong revenue growth, and its P/E ratio is not an accurate measure of its value. Operating cash flow is a more reliable indicator, and with its high-margin business segments and AWS growth, Amazon is undervalued. The potential risks are minimal, making it a promising investment with significant upside potential.
Investors seeking ETF options for the rest of 2024 can consider the TMSL small/midcap ETF due to potential interest rate cuts. With a 50/50 split between small and mid-sized companies, an active approach, and promising returns, this ETF may offer dynamic growth opportunities and a blend of growth and value styles for the remainder of the year.
Many advisor portfolios are underweight in large cap growth, missing out on potential returns. The American Century Focused Dynamic Growth ETF (FDG) offers active large-cap growth exposure, with a 35.8% return over the last year, outperforming its benchmark. FDG’s active approach and scrutiny of funds help navigate the large-cap growth world amid potential tech bubbles and market outlook changes.
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The Nasdaq 100 Index, while popular, has drawbacks for capturing growth stocks due to its simplicity. The WisdomTree U.S. Quality Growth Index offers a more targeted approach, outperforming the Nasdaq 100 with a focus on high-growth, high-profitability companies. This index selects 100 companies based on growth and quality factors, offering a better approach to capturing growth.
The potential for a small-cap comeback amid high interest rates is gaining attention. While some investors await rate cuts, the Russell 2000 has shown a 10.3% return in the last three months. Strong interest in the ALPS O’Shares US Small-Cap Quality Dividend ETF (OUSM) reflects a growing interest in tech chart streaks and quality small-cap investments.
In 2023, small-cap stocks and ETFs faced challenges due to their lagging status compared to large-caps, sensitivity to increasing interest rates, and susceptibility to economic contraction. However, prospects for 2024 look promising with ETFs like Invesco NASDAQ Future Gen 200 ETF (QQQS) possibly benefitting from low valuations, potential forthcoming rallies, and strengthening economic conditions. Issues related to sectoral exposure of QQQS seem manageable with a prepensity for a resurgence in the healthcare and biotech sectors.
Small-caps equities can make a pronounced move to the upside. This is especially so after the recent interest rate hike pause by the U.S. Federal
The iShares Core S&P Small-Cap ETF (IJR) is poised to outperform cash and the broader market, backed by dovish Fed comments and weak jobs data. Small cap stocks, which have underperformed compared to large caps, are expected to rebound due to their current extreme valuation discount. Although challenges exist, like high real yields and slowing economic growth, IJR’s historical growth and favorable valuations present a strong case for investment.
