Home etfexpress.com Exploring the potential of US small caps 

Exploring the potential of US small caps 

Infrastructure Capital Advisors (InfraCap) announced its fifth ETF, the InfraCap Small Cap Income Fund ETF (SCAP) in December 2023 – and the firm is already considering another ETF launch, pencilled in for 2024.

InfraCap’s latest ETF, SCAP, is focused on mainly small-cap US companies with income and growth potential, particularly value stocks.  

Jay D Hatfield, founder, chief executive and lead portfolio manager for all of the firm’s funds explains: “We screened all stocks in the Russell 2000 index for positive dividends, positive earnings, earnings growth, low leverage and good liquidity, and what we ended up with is a value and income set of stocks, correlated with the Russell 2000.”

Investments may encompass common stocks, preferred stocks, convertible securities, debt instruments, equity-linked notes or other small-cap-focused ETFs. 

He adds: “Our firm is focused on income – most of our clients are either retired or planning for retirement or are younger and want income for security purposes, so all our ETFs generate income from various asset classes.”  

Hatfield is also thinking about launching another ETF in 2024: “We’re considering a bond ETF,” he says: “We usually wait till our most recently launched fund is at critical mass, so we don’t have too many irons in the fire. 

“Usually, we wait for between six months to a year, but we think it’s a particularly strong environment at the moment, so it might happen sooner rather than later.”  

InfraCap, which is based in New York City, started in 2012. Assets under management currently total more than USD1.5 billion.  Hatfield has around 30 years’ experience in the investment sector, including stints as a banker at Morgan Stanley and as head of research at a hedge fund, as well as in portfolio management.  

Reflecting on InfraCap’s progress over the years, he says: “We were one of the first active managers in the ETF space. We launched our master limited partnership (MLP) fund AMZA 10 years ago. Back then there were very few active funds.

“We have a long-term focus, so what we’ve found is that we usually have slow growth in funds when they’re first launched, and then they accelerate. Our US preferred stock ETF, PFFA, was launched with modest capital, a couple of million dollars, over five years ago. Now it’s at USD720 million.

“We were able to raise USD250 million of new capital this year in our ETFs, partly because most of them are the top performing ETFs in their sectors over the last three-five years.” PFFA is in the top 1 per cent of its Morningstar category year to date. 

Considering what 2024 may hold, Hatfield comments: “We’re very bullish about next year, as are most strategists, because we’re coming out of a tightening cycle. The US economy is relatively unfazed by that. 

“We think Europe’s going into recession now. We also think that global rates are coming down: small-cap value stocks are very interest-rate sensitive. When rates are dropping, small caps outperform. 

“It’s an excellent time to invest in small caps,” he concludes.  

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