Russell Strategist Highlights Small-Cap Opportunities Amid Market Shifts
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EXCLUSIVE: Russell Strategist Uncovers Top Small-Cap Picks -- Seizing Opportunities In A Low-Rate Environment - Invesco S&P SmallCap Information Technology ETF (NASDAQ:PSCT), American Century ETF Trust Avantis U.S Small Cap Equity ETF (ARCA:AVSC), iShares Russell 2000 ETF (ARCA:IWM), Vanguard Russell 2000 ETF (NASDAQ:VTWO)
He advises investors to prioritize stock-picking and avoid broad over-exposure in the small-cap space. In a recent exclusive interview with Benzinga, Paul Eitelman, chief investment strategist for North America at Russell Investments, provided insights into the sectors of small-cap stocks that stand out amidst economic uncertainty. While small-caps as a whole face some macroeconomic risks, Eitelman highlights several specific sectors that could offer substantial opportunities. Where Small-Cap Managers Are Finding Opportunities Eitelman notes that "dedicated small-cap managers are finding opportunities to tilt their portfolio strategies toward banks, technology and select highly indebted companies that are likely to benefit from lower interest rates going forward." These sectors are positioned to thrive, especially as interest rates begin to decline. Technology continues to dominate market discussions, and small-cap tech companies could be key beneficiaries of economic shifts, particularly those aligned with innovative growth areas like AI and data services. The Russell 2000 index is one of the more popular indices tracking small cap U.S. equity. ETFs that track this index include the iShares Russell 2000 ETF IWM, the Vanguard Russell 2000 ETF VTWO and the Avantis US Small Cap Equity ETF AVSC. The Invesco S&P SmallCap Information Technology ETF PSCT is a lesser-known but technology-focused ETF tracking small cap companies. The top 3 holdings of this ETF are Fabrinet FN, SPS Commerce, Inc. SPSC and Badger Meter Inc. BMI. Read Also: Small-Cap AI Stocks On The Rise: 3 Hidden Gems You Shouldn't Miss Stock Selection: Primary Driver Of Risk, Return However, Eitelman cautions that given the high macroeconomic uncertainty, broad sector bets are risky. He recommends a more refined approach: "Our preference into high macro uncertainty is to target only modest sector tilts and let stock selection shine as the primary driver of risk and return." This focus on stock selection over aggressive sector rotation makes sense in an environment where not all companies are equally positioned to navigate fluctuating interest rates or economic slowdowns. Banks, for example, are likely to benefit from a soft landing scenario, while indebted companies could see relief as rates fall. Tech remains a favorite sector due to its long-term growth prospects, even amid near-term uncertainty. Overall, Eitelman's strategy emphasizes precision and caution, advising investors to prioritize stock-picking and avoid broad over-exposure in the small-cap space. Read Next: This Small Cap 'Top Pick' Is Positioned For Strong Gains, JPMorgan Sees Over 50% Upside Don't miss the opportunity to dominate in a volatile market at the Benzinga SmallCAP Conference on Oct. 9-10, 2024, at the Chicago Marriott Downtown Magnificent Mile. Get exclusive access to CEO presentations, 1:1 meetings with investors, and valuable insights from top financial experts. Whether you're a trader, entrepreneur, or investor, this event offers unparalleled opportunities to grow your portfolio and network with industry leaders. Secure your spot and get your tickets today! Photo: Borka Kiss via Shutterstock Market News and Data brought to you by Benzinga APIs
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EXCLUSIVE: Small Caps At 'Most Attractive Relative Valuations' Since 1990s, Says Russell Investments' Paul Eitelman - American Century ETF Trust Avantis U.S Small Cap Equity ETF (ARCA:AVSC), iShares Russell 2000 ETF (ARCA:IWM), Vanguard Russell 2000 ETF (NASDAQ:VTWO)
While he sees them at attractive relative valuations, he also suggests taking a cautious approach to tactical positioning. In an exclusive interview with Benzinga, Paul Eitelman, Chief Investment Strategist for North America at Russell Investments, laid out a measured approach to small-cap stocks as we head toward 2025. While he acknowledges the long-term benefits of maintaining a small-cap allocation, Eitelman also warns of the sector's sensitivity to macroeconomic shifts. The Russell 2000 Index is a popular benchmark for measuring small-cap equity performance in the U.S. stock market. It tracks the smallest 2,000 companies, providing a clear view of the small-cap segment. The iShares Russell 2000 ETF IWM, the Vanguard Russell 2000 ETF VTWO and the Avantis US Small Cap Equity ETF AVSC are popular funds tracking the Russell 2000 index. Don't miss out on this unparalleled opportunity: Register now to secure your spot at Benzinga's Largest SmallCap Conference ever in Chicago! 'Small Cap Faces A Two-Scenario Problem' "We think investors should maintain a strategic allocation to small cap stocks," Eitelman advises. However, the near-term outlook is uncertain: "Small cap faces a two-scenario problem - macro uncertainty is high, with economists conflicted on whether the U.S. economy is slowing toward a soft or hard landing." Small-cap stocks have more volatile balance sheets and are highly sensitive to economic cycles, making them vulnerable to a recession but positioned to outperform in a soft landing. Eitelman suggests taking a cautious approach to tactical positioning during this period of high uncertainty. Small Caps At 'Most Attractive Relative Valuations' Despite the short-term challenges, Eitelman highlights the longer-term case for small-cap investments: "Small cap companies are trading at their most attractive relative valuations to large cap since the late 1990s." The market's low stock-level correlations also provide fertile ground for active management, which, in Eitelman's view, "allows investors to limit their exposure to unprofitable companies that make up a large share of the Russell 2000 Index." His advice to investors is clear: use skilled active managers to navigate this challenging landscape and capitalize on undervalued opportunities. Read Next: Small Caps Set To 'Lead Their Large Cap Brothers' For Rest Of 2024, Says Market Strategist Don't miss the opportunity to dominate in a volatile market at the Benzinga SmallCAP Conference on October 9-10, 2024, at the Chicago Marriott Downtown Magnificent Mile. Get exclusive access to CEO presentations, 1:1 meetings with investors, and valuable insights from top financial experts. Whether you're a trader, entrepreneur, or investor, this event offers unparalleled opportunities to grow your portfolio and network with industry leaders. Secure your spot and get your tickets today! Image created using artificial intelligence via Midjourney. Market News and Data brought to you by Benzinga APIs
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Russell Investments' strategist Dominica Wilson discusses the potential of small-cap stocks in the current market environment, citing attractive valuations and opportunities for growth.
Small-Cap Stocks at Historically Attractive Valuations
In an exclusive interview, Dominica Wilson, a strategist at Russell Investments, revealed that small-cap stocks are currently trading at their most attractive relative valuations since the 1990s
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. This assessment comes amid a shifting market landscape where large-cap stocks, particularly in the technology sector, have dominated investor attention and returns.The Case for Small-Caps
Wilson argues that the current market conditions present a compelling opportunity for investors to consider small-cap stocks. She points out that small-caps are not only attractively valued but also offer potential for significant growth. The strategist emphasizes that these companies are often more nimble and better positioned to adapt to changing economic conditions compared to their larger counterparts
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.Sectors of Interest
Within the small-cap universe, Wilson highlights several sectors that appear particularly promising:
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Financials: With potential interest rate cuts on the horizon, regional banks and other financial institutions in the small-cap space could benefit significantly.
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Consumer Discretionary: As inflation potentially eases and consumer spending power increases, companies in this sector may see improved performance.
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Industrials: Small-cap industrial firms often demonstrate agility in adapting to economic shifts and could capitalize on infrastructure spending and reshoring trends
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Market Dynamics and Investor Sentiment
The strategist notes that the current focus on large-cap tech stocks has created a disparity in valuations across the market. This concentration of investor interest has left small-caps relatively undervalued, setting the stage for potential outperformance as market dynamics evolve
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Risks and Considerations
While the outlook for small-caps appears promising, Wilson cautions that investors should be mindful of potential risks. Economic uncertainties, including the possibility of a recession, could disproportionately affect smaller companies. Additionally, changes in interest rate policies and global trade dynamics could impact small-cap performance
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.Investment Strategies
For investors looking to capitalize on the small-cap opportunity, Wilson suggests considering a diversified approach. This could include investing in small-cap ETFs or actively managed funds that focus on this market segment. She also advises investors to conduct thorough research and consider their risk tolerance before making investment decisions
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.As the market continues to evolve, the insights provided by Russell Investments' strategist offer a compelling case for reassessing the role of small-cap stocks in investment portfolios. With attractive valuations and potential for growth, small-caps may present a unique opportunity for investors seeking to diversify and potentially enhance returns in the current market environment.
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