Small Cap Strategies: Boosting Returns through Active Management
Investors are turning to small cap stocks as a way to gain exposure to potentially high-growth companies. However, with the Russell 2000 index up over 12% this year, it’s clear that not all small caps are created equal. To maximize returns, investors are increasingly looking to actively managed strategies that can help them avoid underperforming companies.
Screening Out Small Cap Laggards
Rob Harvey, co-head of product specialists at Dimensional Fund Advisors, uses an actively managed approach to buying small caps. By removing companies that are “scraping the bottom of the barrel” in terms of profitability, Harvey aims to boost returns for investors. This approach is reflected in the Dimensional U.S. Small Cap ETF, which has top holdings including Sprouts Farmers Market, Abercrombie & Fitch, and Fabrinet.
The Rise of Actively Managed Products
Ben Slavin, global head of ETFs for BNY Mellon, notes that investor sentiment has shifted towards small caps, with many investors seeking out actively managed products to screen out underperformers. “These types of strategies are benefitting,” Slavin says, as investors look to maximize their returns in the small cap space.
A Focus on Quality
While the Dimensional U.S. Small Cap ETF is currently underperforming the Russell 2000 by over 1%, its focus on quality companies is likely to pay off in the long run. By avoiding companies that are struggling to turn a profit, investors can reduce their risk and increase their potential for returns.
The Importance of Active Management
In a market where passive investing has become increasingly popular, the importance of active management should not be overlooked. By taking a hands-on approach to investing, fund managers like Rob Harvey can help investors navigate the complex world of small cap stocks and identify opportunities for growth.
A Shift in Investor Sentiment
As investors continue to seek out new ways to gain exposure to small caps, it’s clear that there is a shift in sentiment towards actively managed products. With the potential for higher returns and reduced risk, it’s no wonder that investors are turning to funds like the Dimensional U.S. Small Cap ETF.
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