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How to Hone in on Small-Cap Leadership

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Small-cap stocks and ETFs have lagged their large-cap rivals this year and that’s true of technology fare, too. However, the Invesco S&P SmallCap Information Technology (NASDAQ: PSCT) is sharply outperforming broader small-cap funds this year and could be an ideal way for tactical investors to play smaller stocks in 2020.

PSCT tracks the S&P SmallCap 600 Capped Information Technology Index. The ETF’s 77 holdings are “are principally engaged in the business of providing information technology-related products and services, including computer hardware and software, Internet, electronics and semiconductors and communication technologies,” according to Invesco.

Small cap equities have been lagging behind their large cap brethren for the last few years, but 2020 could be the year that investors could go big on small cap equities. A Bloomberg article referenced a survey of five strategists and four expect small-cap stocks to outperform in 2020.

“Another reason to consider PSCT in the new year is its leverage to growth stocks (52.24 percent of the portfolio) and the persistence of that factor overvalue. Some market observers believe, and historical precedent speaks to this point, that if the economy slows, growth stocks will continue trekking higher,” according to Nasdaq.

A Push For PSCT

A catalyst for PSCT in 2019 has been the strength of semiconductor stocks, which is relevant to the fund because it allocates over 57% of its components and chip makers. That theme could extend into 2020.

Cutting-edge chipmakers are the best-performing industry across sectors and regions as more consumers acquire internet-connected devices. Semiconductors now make up some of the most essential products and technologies we use every day, such as advanced mobile networks, iPhones and the new generation of artificial intelligence

“If themes such as 5G and artificial intelligence, among others, can prop up semiconductor demand in 2020, PSCT could reward investors willing to take on some added volatility and maybe, just maybe, outperform large-cap tech funds,” according to Nasdaq.

Over the past decade, semiconductor companies have grown more efficient, reducing costs and increasing production. Chipmakers learned to streamline production and improve their capacity planning and equipment spending. Meanwhile, chip demand surged as the global economy expanded

For more news and strategy on the Technology market, visit our Technology category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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