Small cap is the darling of the record bull run we have experienced over the past 10 years. The Small-Cap ETF IJR has risen nearly 300% since January 2019, outperforming the SPY by 10% during the same time period (1/1/2009 to 6/24/2019). Small cap is believed to provide investors a performance “kicker”, where the smaller stocks have higher rates of return than the broad market because they have more potential to grow. The small companies grow faster belief hasn’t played out as small companies have seen earnings contract in the face of slowing economic data. It is known the small caps and small business in the United States in a barometer for the overall health of the economy and job creation slowed to 75,000 jobs created in May 2019.


As of late, lower volatility names have outperformed Small Cap and the broad market, specifically ETF USMV. Over the last year, the USMV ETF has outperformed the SPY by nearly 9.97% and the IJR by nearly 25%. A portion of this performance can be attributed to the portfolio exposure of the ETF, which seeks to invest funds into the lowest volatility market names such as Newmont Mining, Waste Management, Coca Cola or “boring stocks”.

These boring stocks are making all time highs at a steady pace, where as technology names and high beta has been topsy turvy over the last 6 months. Investors are flocking to businesses that produce consistent cash flow, rather than growth names. The reason for investor preference to invest in consistent cash flow businesses could be the uncertainty surrounding the stock market as we head into 2019. It is believed the US economy could experience a period of slowing and possible recession because of a consistent recession indicator flashing warning signs, the inverted yield curve.

USMV Portfolio Holdings
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