Inflation Slows Small Cap Rally, But SMCP ETF Offers Strategic Entry Point
Investors looking to dial up their risk-reward profile typically consider targeting small publicly traded enterprises that offer robust upside potential. Of course, the main threat to this framework is volatility. While that risk can never be completely mitigated, the AlphaMark Actively Managed Small Cap ETF (SMCP) provides market speculators with a more sensible platform.
Fundamentally, the SMCP exchange-traded fund offers two core advantages. Firstly, AlphaMark is actively managed, which means that the investment vehicle is guided by a professional. As market conditions change, the SMCP may navigate around certain pitfalls. Secondly, the ETF encompasses a wide range of individual enterprises. Therefore, no one company will completely sink the portfolio.
Generally, small-capitalization firms have not always performed well. One of the headwinds impacting the ecosystem have been elevated benchmark interest rates. According to Reuters1, small caps started surging in late 2023 – as reflected by the rising per-unit price of SMCP – due to speculation of incoming rate cuts. However, the acceleration eventually faded as inflationary pressures stubbornly stood their ground.
Nevertheless, some relief in this department could possibly be on the way. Based on the latest information 2 from the Labor Department, while the number of new applicants for jobless claims decreased from the prior week, the total number of people requesting some form of government assistance increased. This dynamic suggests that the red-hot labor market is beginning to cool.
Naturally, the framework presents a possible incentivization for the Federal Reserve to present a more accommodative or dovish shift in monetary policy. If so, that could potentially reignite sentiment in small-cap entities, which may have a positive effect on SMCP.
Presently, the top holding of the fund is Abercrombie & Fitch Co. (NYSE:ANF), an omnichannel retailer of popular apparel brands. ANF represents 1.48% of the small-cap fund. Coming in second place is Fabrinet (NYSE:FN), an enterprise in the electronic components segment that provides optical packaging and precision manufacturing services. It carries a fund weighting of 1.38%.
Rounding out the top three is Neogen Corporation (NASDAQ:NEOG), which falls under the diagnostics and research sector of the healthcare ecosystem. It focuses on products and services dedicated to food and animal safety and features 1.31% of the SMCP ETF. Visit https://alphamarkadvisors.com/etf/ to obtain Top 10 holdings of SMCP ETF.
To be sure, small-cap stocks present a higher-risk profile than that of mid or especially large cap firms. Primarily, small caps simply require more due diligence. Part of the reason is that because the underlying businesses tend to be relatively diminutive, not many analysts cover the space. As a result, there are likely to be informational gaps. These gaps can catch unprepared investors off guard yet this unpredictability also facilitates opportunities for upside.
The SMCP Chart: Since its public market debut in 2015, the SMCP ETF has returned 20%. Perhaps not surprisingly, the fund tends to be choppy, with some of the strongest players lifting the portfolio while downside performances in the least-promising names have caused snap volatility.
• Over the past 52 weeks, the SMCP is up around 20% based on closing prices. Since approximately early March, however, the ETF has entered into a sideways trend channel. That might present an entry point for prospective investors, especially as the market appears to be looking for its next big catalyst.
• At the moment, SMCP trades hands at $30.60. That's modestly above its 50-day moving average, which comes in at $30.49. However, the fund is also a hair below its 20 DMA (Displaced Moving Average), which stands at $30.77. Notably, an upside resistance line has materialized at the $31 level. That would be the next logical target for the fund to cross.
• A support line has been established at the $30 level. That's also a psychologically satisfying whole number that the bulls need to maintain. Bearish traders will attempt to drive down the price below this key threshold, which could trigger automated sell orders.
• A big acquisition volume spike that flashed on the June 17 session will offer encouragement to the optimists, especially as they wait for news that could benefit small caps, such as an accommodative (dovish) monetary policy.
Past performance is not a guarantee of future results. The investment return and the principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. Current month-end data is available at 859-957-1803.
Visit https://alphamarkadvisors.com/etf/ for more information about the AlphaMark Actively Managed Small Cap ETF. Standardized fund performance can also be found through the link in addition to more information.
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AlphaMark Advisors LLC is the Advisor to the AlphaMark Actively Managed Small Cap ETF which is distributed by Quasar Distributors, LLC.
Footnotes:
2 https://www.reuters.com/markets/us/us-weekly-jobless-claims-fell-latest-week-2024-06-20/