Brooke ThackrayiShares Russell 2000 ETFIWMTOP PICKDec 05, 2024

Is up 15% this year. Momentum in small-caps is more intense than in mid- and large-caps.

Cheaper than the market. Not owned that much, so it adds some diversification. Small caps tend to do better than big caps over the long term. Very interest-rate sensitive. Bit of a catchup going on via a broadening out of the market rally. 

About 57% of stocks are above their 200-day MA. So if we get interest rate cuts, this area should do really well.

He had it for a month or two, then exited. Will look at it again shortly. On technicals, looks fine -- going up, went past high of December 2024. Problem is that it's not going up as much as the market. Riskier play -- exposure to regional banks and zombie companies (have trouble paying interest).

Will do well in a risk-on market if interest rates go down. Might be of interest later on in the strong seasonal period of December-March.

It is very cheap relative to the market. Breadth is widening with 64% of the S&P trading above the 200 day moving average. Many people are over-exposed to large caps and the Magnificent 7. He is a stock picker but wants efficiency for his clients so ETF's offer good risk/reward as well as diversification, and are cheap relative to their growth rate. The small cap area has long under-performed and over time tends to outperform because they are smaller companies. The sweet spot is rates are coming down and smaller companies have a lot of floating rate debt. He feels that the economy is better than you think. In Canada there are tons of small caps which are cheaper than they should be.

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.

It's been a long wait for small-caps to start to rise this past quarter; small and mid-caps have been outperforming, and there's a long way to go, tied to the strong domestic economy.

Small caps will catch up to the rest of this rally. Given the positive economic news we've been getting all week, small-cap topline revenues should stay intact as borrowing costs decline.

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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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.

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.

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.

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.

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.

20% off all time share price high.
Market rally will lift shares to new records.
Small cap indexes presenting opportunity.
Better diversity in companies that make up index.