It might be time for small-caps to take the lead, and several exchange-traded funds offer smart exposure to this part of the market, according to Bank of America. ETF strategist Jared Woodard said in a note to clients on Monday that the macroeconomic environment and early earnings season trends point to a period of outperformance for small-caps. “Small caps are seeing much better earnings forecasts, have held up better against inflationary/stagflationary backdrops and are benefiting from even better trends in services > goods spending,” the note reads. The small-cap Russell 2000 index is down about 19% this year, slightly underperforming the S&P 500 and Russell 1000. As small-caps start to close the gap, value stocks could take the lead, Woodard said. “Value has tended to outperform growth in small-caps during recessions (and over the long term) and [strategist] Jill Hall currently favors value factors like free cash flow,” Bank of America said in a statement. Bank of America upgraded a value fund Monday to buy it off the hold. The Pacer Small-Cap Cash Cows 100 ETF (CALF) is now the top-rated small-cap fund for Bank of America. He has a four-star rating from Morningstar and an expense ratio of 0.59%. The Pacer fund contains the stocks with the highest free cash flow in the S&P 600, with top holdings including VIR Biotechnology, Academy Sports & Outdoors and Korn Ferry The fund is down about 14% for the year Source: Bank of America The Bank of America has two other buy-rated small-cap funds, and they are Vanguard’s small-cap funds -Cap Value (VBR) and Small-Cap Growth (VBK). Like most Vanguard funds, the small-cap vehicles have the advantage of low fees. Both funds have an expense ratio of just 0.07%. — CNBC’s Michael Bloom contributed to the report.
https://www.cnbc.com/2022/07/26/small-cap-etfs-can-help-you-ride-out-a-recession-bank-of-america-says.html Small-cap ETFs can help you weather a recession, says Bank of America