Are Small Caps Profitable Investments in Today’s Market?
Small-cap stocks have long been considered a risky but potentially rewarding investment option. However, recent data suggests that the Russell 2000 index, which tracks small-cap stocks, may have a profitability problem.
Despite gaining 10.1% in July, the Russell 2000 has dropped around 4% in August, leading investors to question the index’s overall profitability. According to ALPS’ Paul Baiocchi, approximately 40% of the companies included in the index have negative earnings, contributing to the volatility in the market.
To address this profitability drag, investors are urged to consider quality companies within the small-cap space. ALPS’ O’Shares U.S. Small-Cap Quality Dividend ETF Shares (OUSM) is one such option that focuses on quality companies that pay and grow their dividends, while also offering less volatility than their peers.
With just 107 stocks in its portfolio, OUSM provides a more selective approach compared to the broad Russell 2000 index. Top holdings in the fund include Tradeweb Markets, Juniper Networks, and Old Republic International. Despite recent market fluctuations, OUSM has outperformed the Russell 2000 by over 2 percentage points month to date.
In today’s market environment, where small-cap profitability is in question, choosing quality companies with a track record of dividend growth may provide a more stable investment option for investors seeking exposure to the small-cap space.
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