The Trump administration may create powerful tailwinds for two vastly different market groups: Big banks and small cap stocks.
In the case of financials, Astoria Portfolio Advisors’ John Davi predicts deregulation — along with a boost in IPO and mergers and acquisitions — to spark multi-year strength.
“The funny thing about the banks is that they were actually from an earnings standpoint fundamentally getting very attractive prior to the Trump administration,” the firm’s founder and CEO told CNBC’s “ETF Edge” on this week. “The large-cap money centers like Goldman [Sachs], JPMorgan, Bank of America, Morgan Stanley… That’s really the area you want to hone in on with this new administration.”
The money center banks are coming off a strong week. Shares of Goldman Sachs, JPMorgan Chase, and Morgan Stanley hit record highs on Friday.
That historic gains are a major reason why Davi likes the Invesco KBW Bank ETF. Its top holdings include JPMorgan, Goldman Sachs, and Morgan Stanley, according to FactSet.
The ETF is up almost 10% since Jan. 1 and more than 49% over the past 52 weeks.
While bank stocks rally, VettaFi’s Todd Rosenbluth expects small cap stocks to shine under Trump 2.0. He sees the group adapting quickly to reshoring and tariff threats.
“If we have a focus on the U.S. and making America even stronger, then small-cap companies stand to benefit from that because they have less multinational exposure,” the firm’s head of research said.
Rosenbluth suggests the T. Rowe Price Small-Mid Cap ETF and Neuberger Berman Small-Mid Cap ETF as ways investors can play the group.
He also likes the VictoryShares Small Cap Free Cash Flow ETF, which has solid exposure to biotech.
The VictoryShares Small Cap Free Cash Flow ETF is a fund that focuses on quality small-cap companies trading at a discount with favorable growth prospects. According to the fund’s website, its top three holdings are Royalty Pharma, Oscar Health, and Jazz Pharmaceuticals. The fund’s mission is to target high-quality small-cap companies with strong free cash flow generation.
The ETF, managed by VictoryShares, has a growth filter that sets a high bar for small-cap stocks to make the cut. This filter ensures that only companies with strong growth potential and solid free cash flow generation are included in the fund’s portfolio.
Over the past year, the VictoryShares Small Cap Free Cash Flow ETF has seen a return of almost 10%, while the Russell 2000 index, which tracks small-cap stocks, has returned about 17%. This performance highlights the fund’s focus on quality companies with strong growth prospects.
In summary, the VictoryShares Small Cap Free Cash Flow ETF offers investors exposure to small-cap companies with strong fundamentals and growth potential. With its top holdings in Royalty Pharma, Oscar Health, and Jazz Pharmaceuticals, the fund aims to provide investors with a diversified portfolio of high-quality small-cap stocks.
