Investors are constantly seeking investment options that offer attractive returns and potential for growth. Two such options that have gained attention are midcap stocks, small-cap value ETFs, and small-cap growth ETFs.
Midcap stocks have been praised for their inexpensive nature compared to large-cap counterparts [79ad8f70]. The Calvert US Mid-Cap Core Responsible ETF, for example, offers a values-based investment option with an ESG overlay [79ad8f70]. These midcap stocks are expected to perform well due to the likelihood of the U.S. economy avoiding a deep recession and the current discounts in midcap territory [79ad8f70].
On the other hand, small-cap value ETFs are being encouraged for their potential to outperform larger indices like the S&P 500 and Nasdaq Composite [0d889047]. The International Monetary Fund (IMF) has also raised the U.S. growth forecast for 2023, which bodes well for small-cap stocks [0d889047]. Additionally, robust consumer spending in the U.S. is expected to benefit small-cap companies that are more domestically-oriented [f6c42b73] [0d889047]. Both midcap stocks and small-cap value ETFs have historically delivered outstanding returns during periods of low valuations and improving sentiment [0d889047] [79ad8f70].
Furthermore, InfraCap has launched its fifth ETF, the Small Cap Active Recovery Portfolio (SCARP), which aims to capitalize on the growth potential of small-cap stocks [24c68c84]. InfraCap, with over $1.5 billion in assets under management, believes that small-cap stocks are trading at historically low prices and may experience a bounce-back in 2024 [24c68c84]. The launch of SCARP comes as the Nasdaq, which tracks big tech stocks, has seen significant gains [24c68c84]. Small caps have been noted for their low price/book ratio compared to the S&P 500, suggesting they could perform well in a soft landing scenario for the US economy [24c68c84]. InfraCap sees small caps as a great opportunity to access disruptive innovation and leverage mega-trends [24c68c84].
According to a recent article by JPMorgan, now may be a good time to consider adding quality small- and mid-cap stocks to investment portfolios [a555645d]. Small- and mid-cap stocks have generally underperformed large-cap stocks over the past 10 years, but they have grown their earnings at a faster pace [a555645d]. The article highlights that durable earnings growth and near-record valuation discounts create a potential entry point for investors [a555645d]. SMID-cap companies are at the leading edge of innovation and have streamlined business models with competitive advantages [a555645d]. They are also ideal targets for M&A activity [a555645d]. Investing in high-quality SMID-cap stocks has historically generated better long-term performance with less volatility [a555645d]. Selectivity is key in the SMID-cap universe due to a wide dispersion in the quality of underlying companies [a555645d]. Limited analyst coverage provides opportunities for active stock picking [a555645d]. Allocating around 5% to 10% of an overall equity portfolio to SMID-cap stocks can be additive to risk-adjusted returns [a555645d]. Quality SMID-cap stocks offer potential long-term growth and portfolio diversification benefits [a555645d].
It is crucial for investors to carefully consider the balance between value, growth, and quality when investing in these options. Factors such as sector mix, market cap, earnings yield, and growth and quality indicators can impact the performance and quality of the underlying stocks [eb369820]. By assessing free cash flow and return on capital, investors can make informed decisions about the potential risks and rewards of these investments [eb369820]. Overall, investing in midcap stocks, small-cap value ETFs, and small-cap growth ETFs provides investors with the opportunity to diversify their portfolios and potentially benefit from attractive returns in the current market landscape.
According to a recent article by UBS, investing in small- and mid-cap stocks can provide additional benefits in terms of diversification [68b4d0b6]. While large-cap stocks have outperformed smaller companies in the current equity rally driven by artificial intelligence (AI), there is attractive value in small- and mid-sized companies [68b4d0b6]. Investing in smaller companies can provide exposure to other structural growth trends such as energy transition, healthcare disruption, and water scarcity [68b4d0b6]. Supportive inflections in the macroeconomic backdrop, including expected interest rate cuts by central banks, can benefit small-cap companies [68b4d0b6]. Valuations for small- and mid-cap stocks are appealing, with lower price-to-earnings ratios compared to large-cap stocks [68b4d0b6]. The article suggests that adding small- and mid-cap stocks to a diversified portfolio can help improve returns and diversification over the long term [68b4d0b6].
BSE midcap and smallcap indices have surged this year, driven by strong domestic liquidity and positive macroeconomic fundamentals. Till July 16 this year, the BSE midcap gauge has jumped 10,984.72 points or 29.81 per cent, while the smallcap index has surged 11,628.13 points or 27.24 per cent [5f51c405]. The surge in domestic liquidity is the primary reason for the outperformance of midcap and smallcap stocks. Largecap stocks have lagged behind due to selling by foreign institutional investors (FIIs). The midcap and smallcap segments have sector-specific strengths in technology, healthcare, and consumer goods, coupled with lower valuations and higher growth potential. The BSE midcap gauge hit its all-time high of 48,175.21 on July 16 this year, while the smallcap index reached its lifetime peak of 54,617.75 on July 8. The market is likely to continue its rally provided there are no negative surprises from the upcoming Budget [5f51c405].