Finance
Trump may boost for big banks due to deregulation, small caps
The Trump administration may create powerful tailwinds for two vastly different market groups: Big banks and small cap stocks.
In the case of financials, Astoria Portfolio Advisors’ John Davi predicts deregulation — along with a boost in IPO and mergers and acquisitions — to spark multi-year strength.
“The funny thing about the banks is that they were actually from an earnings standpoint fundamentally getting very attractive prior to the Trump administration,” the firm’s founder and CEO told CNBC’s “ETF Edge” on this week. “The large-cap money centers like Goldman [Sachs], JPMorgan, Bank of America, Morgan Stanley… That’s really the area you want to hone in on with this new administration.”
The money center banks are coming off a strong week. Shares of Goldman Sachs, JPMorgan Chase and Morgan Stanley hit record highs on Friday.
That historic gains are a major reason why Davi likes the Invesco KBW Bank ETF. Its top holdings include JPMorgan, Goldman Sachs and Morgan Stanley, according to FactSet.
The ETF is up almost 10% since Jan. 1 and more than 49% over the past 52 weeks.
Year-to-date chart of the KBWB ETF
While bank stocks rally, VettaFi’s Todd Rosenbluth expects small cap stocks to shine under Trump 2.0. He sees the group adapting quickly to reshoring and tariff threats.
“If we have a focus on the U.S. and making America even stronger, then small-cap companies stand to benefit from that because they have less multinational exposure,” the firm’s head of research said.
Rosenbluth suggests the T. Rowe Price Small-Mid Cap ETF and Neuberger Berman Small-Mid Cap ETF as ways investors can play the group.
He also likes the VictoryShares Small Cap Free Cash Flow ETF, which has solid exposure to biotech. Its top three holdings according to the fund’s website are Royalty Pharma, Oscar Health and Jazz Pharmaceuticals, and its mission statement is to target “quality small cap companies, trading at a discount with favorable growth prospects.” Its top three holdings.
VictoryShares Small Cap Free Cash Flow ETF,
According to Rosenbluth, the ETF “takes a focus on companies with high quality, strong free cash flow generation, but it has a growth filter to it,” said Rosenbluth, who added the filter sets a high bar for which small-cap stocks ultimately make the cut.
The VictoryShares Small Cap Free Cash ETF is up almost 10% over the past year while the Russell 2000, which tracks the group, is up about 17%.
By CNBC “ETF Edge” Staff
It appears T. Rowe Price is benefitting from the record growth in actively managed exchange traded funds.
Tim Coyne, the firm’s head of ETFs, reports the firm is seeing significant growth in the area — listing the T. Rowe Price Capital Appreciation Equity ETF (TCAF) and T. Rowe Price U.S. Equity Research ETF (TSPA) as two established strategies that can satisfy investor demand.
“I think having that professionally managed portfolio is really beneficial to clients,” Coyne told CNBC’s “ETF Edge” this week. “We’re seeing just… greater volatility [and] uncertainty across both the equity and fixed income markets.“
According to Coyne, the T. Rowe Price Capital Appreciation Equity ETF suits investors who are looking for long-term growth.
“The objective of the fund is to outperform the S&P 500 with lower volatility and greater tax efficiency,” he said. “It’s also a more concentrated portfolio, typically holding around a hundred names.”
As of April 24, the fund’s top holdings include Microsoft, Amazon, and Apple according to the T. Rowe Price website. But it’s not all Big Tech. The ETF also features smaller positions in companies like Becton Dickinson and Roper Technologies.
The T. Rowe Price Capital Appreciation Equity ETF is down about 5% so far this year while the S&P 500 is off about 7% However, the ETF is up close to 8% over the past year — roughly identical to the S&P 500’s performance.
Coyne notes the T. Rowe Price U.S. Equity Research ETF follows a similar strategy, but with a heavier weighting in top tech stocks.
“This is more of a large-cap growth product [T Rowe Price U.S. Equity Research ETF],” he said. “There are components of characteristics of both passive and active here. This fund is actually managed by our North American directors of research. So again, strong fundamental research is going into the stock selection.”
Both the T. Rowe Price U.S. Equity Research ETF and S&P 500 are down around 7% since the beginning of the year. Meanwhile, the fund is up almost 9% over the past year. That’s less than one percent better than the S&P 500’s performance.
T. Rowe Price U.S. Equity Research ETF vs. S&P 500
‘Some form of bear market’
Strategas Securities’ Todd Sohn thinks investment demand for active managers will continue to be strong.
“This is the type of the environment where it [active management] can actually shine,” the firm’s senior ETF and technical strategist said. “We are in some form of bear market. This is where the active manager really can come into hand and offer their solution they are doing right.”
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