It Pays to Be Selective With Small-Caps

Core Viewpoint - Small-cap stocks are showing positive momentum, with the Russell 2000 Index returning over 10% in the 90 days ending October 9, aided by the Federal Reserve's September rate cut [1]. Group 1: Small-Cap Stock Performance - The recent performance of small-cap stocks marks a significant improvement for a sector that has historically disappointed investors [2]. - Investors are advised to be selective when investing in small-cap stocks, with the O'Shares U.S. Small-Cap Quality Dividend ETF (OUSM) being a recommended option [2]. Group 2: Investment Opportunities - Domestic small-caps offer a way to access earnings growth without heavily increasing exposure to the technology sector, as OUSM allocates only 14.40% of its portfolio to tech stocks [3]. - Smaller companies are less vulnerable to trade tariffs compared to larger U.S. and European firms, which is a crucial consideration given the ongoing trade levies [4]. Group 3: Economic Context - U.S. small-cap stocks are expected to benefit from the historical trend of outperforming large-caps during periods of Federal Reserve easing, alongside solid U.S. GDP growth [5]. - The concentration of small-cap companies on domestic sales positions them favorably amidst robust consumer demand in the U.S. market [6].