Home etftrends.com Small-Caps Could Have Large Potential

Small-Caps Could Have Large Potential

Not only have actively managed small-caps outperformed their benchmarks in both January 2022 and over the course of 2021, but small-cap stocks in general are currently experiencing discounted prices despite having the potential to outperform during bull markets. According to a report from Jefferies LLC, 81% of actively managed small-cap strategies beat the Russell 2000, and 94% of active small-cap core strategies beat the benchmark, the highest beat rate since the bank started collecting the data in 1999.

“Alpha generation is alive and well in small-cap,” said Steven G. DeSanctis, an analyst at Jefferies. “When we get higher volatility, that’s when active earns their fees.”

Despite being on average cheaper than large-caps, James Paulsen, chief investment strategist of The Leuthold Group, is quoted in MarketWatch as saying that small-cap earnings are rising faster than the earnings of large-cap companies.

Meanwhile, Michael Corbett, CEO, CIO, and portfolio manager at Perritt Capital Management, predicts that the economy will be strong this year due to various types of embedded stimulus. In a strong economy, smaller companies tend to fare better. For one thing, since smaller companies tend to be leaner, they can raise prices, which boosts margins. For another, they tend to be based in cyclical businesses, which do better when the economy is strong.

Another tailwind helping small-caps is that while consumer confidence is low, Paulsen believes that it’s likely to improve once the Omicron variant fades, inflation eases, and more people find better-paying jobs. As consumer confidence rises, people are more likely to consider riskier investments, like small-caps.

The Nationwide Russell 2000 Risk-Managed Income ETF (NTKI) is an actively managed fund that invests in a portfolio of securities included in the Russell 2000 Index™. The Russell 2000™ tracks approximately 2,000 U.S. small-cap companies.

NTKI utilizes an options collar strategy as well to seek to reduce the volatility of the fund and provide some amount of downside protection. It also generally uses a “replication” strategy when investing in the Russell 2000 but will switch to a “representative sampling” at the discretion of the sub-advisor and when it is believed to be in the fund’s best interest.

NTKI seeks high monthly income levels generated from both the dividends received from equity holdings and premiums from the options collar. The fund offers a tactical investment opportunity for investors seeking large upside growth potential by gaining exposure to small-caps via the Russell 2000.

NTKI has an expense ratio of 0.68%.

For more news, information, and strategy, visit our Retirement Income Channel.

This article was prepared as part of Nationwide’s paid sponsorship of ETF Trends.

ETFs, hedge funds, equities, bonds, and other asset classes have different risk profiles, which should be considered when investing. All investments contain risk and may lose value. Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund’s return may not match or achieve a high degree of correlation with the return of the underlying index.

The NTKI Prospectus may be accessed at: http://nationwidefunds.onlineprospectus.net/nationwidefunds/NTKI/index.php

Call 1-800-617-0004 to request a summary prospectus and/or a prospectus. You may also download the prospectus at the link above or by visiting etf.nationwide.com. These prospectuses outline investment objectives, risks, fees, charges and expenses, and other information that you should read and consider carefully before investing.

KEY RISKS: The Nationwide Risk-Managed Income ETFs are subject to the risks of investing in equity securities, including tracking stock (a class of common stock that “tracks” the performance of a unit or division within a larger company). A tracking stock’s value may decline even if the larger company’s stock increases in value. The Funds are subject to the risks of investing in foreign securities (currency fluctuations, political risks, differences in accounting and limited availability of information, all of which are magnified in emerging markets). The Funds may invest in more-aggressive investments such as derivatives (which create investment leverage and illiquidity and are highly volatile). The Funds employ a collared options strategy (using call and put options is speculative and can lead to losses because of adverse movements in the price or value of the reference asset). The success of the Funds’ investment strategy may depend on the effectiveness of the subadviser’s quantitative tools for screening securities and on data provided by third parties.

The Funds expect to invest a portion of their assets to replicate the holdings of an index. Correlation between Fund performance and index performance may be affected by Fund expenses and because the Funds may not be invested fully in the securities of the index or may hold securities not included in the index. The Funds frequently may buy and sell portfolio securities and other assets to rebalance its exposure to various market sectors. Higher portfolio turnover may result in higher levels of transaction costs paid by the Funds and greater tax liabilities for shareholders. The Funds may concentrate on specific sectors or industries, subjecting it to greater volatility than that of other ETFs. The Funds may hold large positions in a small number of securities, and an increase or decrease in the value of such securities may have a disproportionate impact on the Fund’s value and total return. Although the Funds intend to invest in a variety of securities and instruments, the Funds will be considered nondiversified. Additional Fund risk includes: Collared options strategy risk, correlation risk, derivatives risk, foreign investment risk, and industry concentration risk.

Alpha – Used in finance as a measure of performance, is the excess return of an investment relative to the return of a benchmark index.

Russell 2000® Index: An unmanaged index that seeks to measure the performance of the small-cap segment of the U.S. equity universe.

FTSE Russell (“Russell”) is the Index Provider for the Russell 2000® Index (“Russell 2000®” or the “Index”). Russell is not affiliated with the Fund, Nationwide Fund Advisors, the Distributor nor any of their respective affiliates. Nationwide Fund Advisors has entered into a license agreement with Russell to use the Russell 2000®.

The Fund has been developed solely by Nationwide Fund Advisors. The Fund is not in any way connected to nor sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies. All rights in the Russell 2000® vest in the relevant LSE Group company which owns the Index. “Russell®” is a trademark of the relevant LSE Group company and is used by any other LSE Group company under license. The Index is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Fund. The LSE Group makes no claim, prediction, warranty nor representation either as to the results to be obtained from the Fund or the suitability of the Index for the purpose to which it is being put by Nationwide Fund Advisors.

Market index performance is provided by a third-party source Nationwide Fund Advisors deems to be reliable (Morningstar or MSCI). Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses have been reflected. Individuals cannot invest directly in an index.

Nationwide Fund Advisors (NFA) is the registered investment advisor to Nationwide ETFs, which are distributed by Quasar Distributors LLC. NFA is not affiliated with any distributor, subadviser, or index provider contracted by NFA for the Nationwide ETFs.

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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.

MFM-4561AO; Q-20220221-0291

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