There's been a lot of talk about the struggles of small-caps. But for the 12 months ending July 3, the average return posted by the widely followed Russell 2000 and S&P SmallCap 600 indexes was 8.3%. Though that lagged the large-cap S&P 500 by a wide margin, it’s not as if the small-caps gauges are in the red.
Still, investors are rightfully leery of allocating capital to smaller stocks and related ETFs. But relief could be on the way as a slew of market observers are wagering that the second half of 2024 will bring better things for small-caps. One way investors can position for a potential resurgence is by embracing higher-quality options, including the ALPS O’Shares US Small-Cap Quality Dividend ETF (OUSM).
Over the past year, OUSM beat the aforementioned small-cap indexes by nearly 200 basis points, indicating that quality is a meaningful component when it comes to evaluating small-caps. On that note, it’s worth acknowledging that quality and dividends often imply a company is profitable – something to consider when just 60% of the Russell 2000 is profitable.
OUSM Could Be Obvious Small-Caps Choice
The universe of small-cap ETFs is expansive, populated by hundreds of offerings, but OUSM could be a stand-out at a time when some market observers are encouraging investors to focus on quality as the avenue through which to revisit smaller stocks.
“We prefer quality SMID-cap stocks that focus on profitability and growing competitive advantages. Some SMID-cap companies carry high levels of debt and a valuation discount for these stocks seems reasonable. However, today’s near-record discount in the highest-quality SMID-cap stocks does not,” observed Sitara Sundar of J.P. Morgan Wealth Management.
