The summer is rapidly closing and a new season will shortly be upon us. The seasonality of the markets this time of year has always been a tricky proposition as well. With that in mind, I’m going to outline my current thoughts on some of the big picture charts. Read more
In this month’s video, I look at the technical trends developing in growth versus value stocks. Chart review includes analysis of large-cap, small cap, international, Treasury bonds, and high yield bond ETF prices. Observations of risk and reward are noted throughout, with an emphasis on trend following and sensible portfolio management. Recorded on May 31, 2017.
Small cap stocks are often thought of as the growth engines of strong market cycles. Investment in these companies engenders the notion of higher risk and magnified price fluctuations compared to their larger peers. As a result, these stocks tend to have streaky performance that can experience periods of strong relative gains or lagging returns.
The latter characteristic is what many would use to describe the current price action of exchange-traded funds that track small cap stocks. These passive index funds have meaningfully underperformed traditional large-cap benchmarks as price patterns meander in a sideways trend.
Small cap stocks are traditionally known as centers of growth in the global capital markets. These companies often demonstrate greater risk due to their diminished market footprint. However, they also offer compelling performance and diversification dynamics for investors with a higher risk tolerance.
Most exchange-traded funds that track this segment are focused on broad swaths of the small cap category. They typically own hundreds, if not thousands, of individual stocks with market capitalization’s of less than $2-$3 billion.
ETF investors are spoiled by the tremendous number of quality choices for building their diversified stock allocations. The sheer breadth of selection across market cap, sector, industry, and factor-based strategies ensures there is something for virtually everyone.
Yet, one of the lesser understood qualities of exchange-traded funds are their ability to simplify your portfolio. You can own hundreds or even thousands of stocks in a single holding with extremely low costs and impeccable tracking efficiency. That eliminates the need to screen numerous positions and creates benefits of widening your exposure profile.