In a volatile market, finding opportunities can feel like searching for a needle in a haystack. But according to Paul Eitelman, chief investment strategist for North America at Russell Investments, there are specific sectors within the small-cap space that stand out as promising havens in the current economic climate. While small-caps as a whole face inherent macroeconomic risks, Eitelman points to a few key areas where savvy investors can find potential for substantial returns.
Eitelman highlights banks, technology, and select highly indebted companies as potential winners. As interest rates begin to decline, these sectors are poised to benefit significantly. Technology continues to be a dominant force in the market, with small-cap tech companies, particularly those focused on innovative growth areas like AI and data services, poised to reap the rewards of economic shifts.
For those interested in exploring the small-cap landscape, several ETFs offer exposure to this market. The Russell 2000 index, a popular benchmark for small-cap U.S. equities, is tracked by ETFs like the iShares Russell 2000 ETF (IWM), the Vanguard Russell 2000 ETF (VTWO), and the Avantis US Small Cap Equity ETF (AVSC). For a technology-focused approach, the Invesco S&P SmallCap Information Technology ETF (PSCT) provides exposure to small-cap companies within the tech sector. This ETF’s top holdings include Fabrinet (FN), SPS Commerce, Inc. (SPSC), and Badger Meter Inc. (BMI).
However, Eitelman cautions that while these sectors hold promise, broad sector bets can be risky in an uncertain macroeconomic environment. He advocates for a more refined approach, emphasizing the importance of stock selection over aggressive sector rotation. “Our preference into high macro uncertainty is to target only modest sector tilts and let stock selection shine as the primary driver of risk and return,” Eitelman states.
This strategy aligns with the current market conditions where not all companies are equally positioned to navigate fluctuating interest rates or economic slowdowns. Banks, for example, are likely to thrive in a soft landing scenario, while indebted companies could see relief as rates fall. The long-term growth prospects of the tech sector remain strong, even amid near-term uncertainty.
Eitelman’s advice is clear: precision and caution are key in the small-cap space. Investors should prioritize stock-picking and avoid broad over-exposure, focusing on companies that are well-positioned to weather the economic storm and emerge stronger on the other side.
To delve deeper into the small-cap landscape and gain insights from industry experts, consider attending the Benzinga SmallCAP Conference on October 9-10, 2024, at the Chicago Marriott Downtown Magnificent Mile. This event offers exclusive access to CEO presentations, one-on-one meetings with investors, and valuable insights from top financial professionals. Whether you’re a trader, entrepreneur, or investor, this conference is an invaluable opportunity to grow your portfolio and connect with industry leaders.
