Opinions
Bryn Talkington
iShares Russell 2000 ETF
IWM-N
TRADE
Jun 30, 2023
Stock price when the opinion was issued
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RSP is not overly exposed to just tech and communications. IWM at market weight has performed much better than RSP. But we're hopefully going to see some rotation. RSP is a great idea, and there are similar tickers that trade on the Canadian side.
IWM has the smallest 2000 companies out of the Russell 3000, underperforming. Small cap should perform better with steady or falling interest rates, as they tend to be more levered.
His portfolio style favours the mid- and large-cap names, but small caps can do well in a lower-rate environment.
Lagged a bit. Small-cap names were caught up more in the downdraft from August-October 2023. Market breadth is spreading out. Seeing a "dash for cash" as people look for ideas to keep up with the Jones of the big caps. Good way to get away from correlation to the mega caps. Expects outperformance later in the year. See his Top Picks.
A bit disappointing. Mega-caps have continued to move forward, while these have moved sideways. At some point, there will be a catch-up trade. Thinks there will still be decent returns here, hold for the diversity. But at this juncture, places where you can get more bang for your buck.
Interesting ETF to get broad exposure to small caps. Have to always be really careful with the small-cap ETFs because you end up owning a lot of low-quality stocks. He focuses on high-quality names. Make sure you don't just blindly buy these indices, as you're going to end up owning a whole bunch of stocks that you probably wouldn't own individually in your portfolio.
For example, he remembers looking at IWM a few years ago and Plug Power was in there. It was a dog's breakfast then, and he thinks it's going bankrupt now or close to it.
So he'd focus more on specific stock names. They tend to move along with the indices, but you have more control over whether you want to own them or not.
The question was on a couple of stocks to buy if there is a rate cut on Wednesday. Lower interest rates favour smaller caps which are more sensitive to higher interest costs. He suggested IWM, the ETF for the Russell 2000 in the U.S. There is also a Canadian proxy for IWM which is SXU.
We would be comfortable slowly accumulating before the election. Typically, markets tend to fall a bit right before the election, and move higher once the uncertainty of the new President has passed. But, many of these things cannot be timed properly, and thus we would be comfortably accumulating here.
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Don't be too over-exposed to any one sector, though it's OK to tilt your portfolio toward a preference. The small-cap universe hasn't yet caught up to the large caps to the degree he expected. Could see a small boost later in the year. Worse places to be than to have a small sleeve of small-cap exposure.
Financials, energy and utilities will see a catch-up trade in the second half of 2023. Certain cyclicals will perform. IWM saw good support at $180 and could top at $195-199. But the Russell 2000 is extremely sensitive to interest rates, and a third of the index is not profitable (those companies). The GDP is also expanding, though, but she thinks GDP will slow while rates stay at 5-5.5%. Overall, not a great environment for small caps and cyclicals. But there will be a catch-up trade in cyclicals in Q3, then it peters out.