How to Invest in Small Cap ETFs Intelligently

Yeah, so I think from a micro cap perspective, I couldn't agree more in the sense that if you're truly looking for access to the space, you're not finding it any of the products in today's lineup. That being said, I do believe in small cap investing, and these are smaller cap than most small cap products out there, and I actually don't think that's necessarily a good thing in terms of allocating to this area of the market.

I think FDM is my winner for this, and it's because of those quality aspects. It's a smaller portfolio. It's tight. It's more robust screening, I guess if you will, or more restrictive. It comes down to a smaller limited number of companies that qualify. I talked about that profitability ratio at the beginning. For all those reasons, FDM wins this lineup.

I think Avantis will be similar in some of their screens that they apply. It's technically active, but it's not active in the sense that it's a pure screening quant strategy. I think it can get you similar kind of core exposure. But if I'm truly looking for a long-term allocation to this space, I'm excited covering the ETF market and seeing some of the traditional managers come to market with truly active products.

And I think this is an area you want to look at true active. They're being legitimate with their pricing. I mean, you can get true active in 30 to 50 basis points in the small cap space. If you go look at their mutual funds, many of them have long-term history of outperforming. So, if you want kind of that higher beta aspect of small cap, go look at some of the active ETFs. We work with a lot of them, so I'm not going to start listing off tickers.

But I think you can go out and you can screen for some of the true active. And when you do that, screen on active share, see how much they look like the overall benchmark, screen on things like profitability ratios, screen on valuation, relative valuation, things like that. And I think you're going to find there's some good opportunity sets for true active small cap investing. But none of these are going to be micro cap, nor as an ETF should they.