Stock picking is crucial when it comes to gaining exposure to small caps in the market. Rob Harvey, the mastermind behind the Dimensional U.S. Small Cap ETF, takes an actively managed approach to selecting stocks within this sector. By strategically avoiding underperforming small cap companies that drag down the index, Harvey aims to boost returns for investors.
In a recent interview on CNBC’s “ETF Edge,” Harvey emphasized the importance of steering clear of companies that lack profitability. “There’s no reason to hold companies that really are scraping the bottom of the barrel in terms of profitability,” he stated. By removing these underperforming stocks from the small cap universe, investors can potentially see significant improvements in their returns.
The Russell 2000, which tracks small cap stocks, has seen a modest increase of over 12% so far this year. In comparison, the broader S&P 500 has experienced a more substantial gain of about 23% during the same period. The Dimensional U.S. Small Cap ETF’s top holdings currently include Sprouts Farmers Market, Abercrombie & Fitch, and Fabrinet, according to the Dimensional Fund Advisors website. Interestingly, cash and cash equivalents make up the largest holding in the fund, accounting for 1.13% of its total assets.
Ben Slavin, the global head of ETFs for BNY Mellon, notes a growing trend among investors who are seeking actively managed products to help filter out underperforming small cap stocks. “Investor sentiment has shifted towards small caps, and you see that in the numbers, in terms of where investors are putting their dollars, from a flow standpoint,” Slavin explained. These types of actively managed strategies are proving beneficial for investors looking to capitalize on the potential of small cap stocks.
Despite the positive momentum in the small cap sector, the Dimensional U.S. Small Cap ETF is currently underperforming the Russell 2000 by more than one percent this year. However, with a strategic focus on stock selection and actively managed approach, Harvey remains optimistic about the fund’s potential for long-term growth and success in the small cap market.
Overall, the Dimensional U.S. Small Cap ETF offers investors a unique opportunity to gain exposure to small cap stocks through a carefully curated selection process, aimed at maximizing returns and minimizing risks in the ever-changing market landscape.
