The Russell 2000 index has been experiencing some volatility recently, with a significant drop in August following a decent gain in July. This has raised concerns about the profitability of companies within the index. According to ALPS’ Paul Baiocchi, a staggering 40% of companies in the Russell 2000 have negative earnings, which is a major cause of concern for investors. This lack of profitability has led to erratic movements in the index, making it a risky venture for those involved.
In light of the profitability issues plaguing the Russell 2000, investors are advised to prioritize quality companies to mitigate risks. Baiocchi recommends looking into more selective exchange-traded funds like the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF Shares (OUSM). This fund focuses on quality companies that pay and grow dividends while maintaining lower volatility compared to their peers. By investing in such funds, investors can aim to navigate the unpredictable small-cap market more effectively.
The ALPS O’Shares U.S. Small-Cap Quality Dividend ETF Shares stands out for its profitability screen and minimalistic approach. With just 107 stocks in its portfolio, the fund offers a more concentrated exposure to quality small-cap companies. Its top holdings, including Tradeweb Markets, Juniper Networks, and Old Republic International, are carefully selected based on their stability and dividend growth potential. Despite the volatility in the market, the fund has managed to outperform the Russell 2000 by more than 2 percentage points month to date, showcasing its resilience in challenging times.
The profitability issues within the Russell 2000 index serve as a warning sign for investors. By prioritizing quality investments and considering options like the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF Shares, investors can navigate the small-cap market with more confidence and resilience. It is essential to be mindful of the risks posed by companies with negative earnings and to seek out stable, dividend-paying companies that can weather market uncertainties. By making informed investment decisions, investors can potentially mitigate the impact of profitability issues and achieve more sustainable returns in the long run.