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2 New Small Cap ETFs on the Block

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Prudential’s PGIM recently launched two new actively managed ETFs — PGIM QMA Strategic Alpha Small-Cap Growth ETF (PQSG - Free Report) and PGIM QMA Strategic Alpha Small-Cap Value ETF (PQSV - Free Report) . PQSG favors the growth potential in companies while PQSV has a value tilt. Both these funds are quantitatively managed; however, managers will have the discretion to select equities.

These kinds of smart beta strategies allow investors an opportunity to diversify their portfolio, reduce risk and earn superior returns over time (see: all the Small-cap ETFs here).

Inside PQSG

The fund seeks to beat the Russell’s 2000 Growth index. It looks to earn long-term capital growth by employing a systematic, proprietary process that selects stocks based on factors such as value, quality and volatility. Sector-wise, Industrials (19%), Healthcare (17.9%), Technology (12.8%), Financials (12.7%) and Consumer Discretionary (12.6%) have double-digit allocation each. The fund comprises 598 holdings, with Arena Pharmaceuticals Inc (ARNA - Free Report) sitting at the top with 0.2% weight.

Since its inception on Nov 13, the fund has amassed $9.9 million and has an expense ratio of 0.29% (read: 5 Top-Ranked Growth ETFs & Stocks to Tap Post Mid-Term Rally).

Inside PQSV

The fund is designed to outperform the Russell’s 2000 Value index. It has similar objectives and principles for stock selection as PQSG. Financials (27.3%), Industrials (15%), Rea Estate (10.2%) and Consumer Discretionary (10.2%) have double-digit allocation each.  Smart & Final Stores Inc (0.18%) is the top weight holder among the 732 holdings in the fund pool.

Since its inception on Nov 13, the fund has amassed $9.9 million and has an expense ratio of 0.29%.

How Do They Fit Into a Portfolio?

There is heightened tension in the markets of late. Rising rate concerns, tech sell-off, oil entering bear territory, political and economic turbulence in Europe, and International Monetary Fund (IMF) cutting growth forecasts for this and the next year are causing panic globally thereby hurting investor sentiment. Trade war concerns have hit the global trade scene and seem to be worsening with time (read: IMF Cuts Global Growth Forecast: ETFs in Focus).

A prudent way to escape this chaos is to invest in the small-cap segment of the broad U.S. stock market. U.S. economy topped estimates and expanded at an annual rate of 3.5% in the third quarter, being on track to achieve Trump’s 3% GDP goal. Retail sales have increased 0.8% last month, showing promising signs for the upcoming holiday season. The labor market is also robust with unemployment rate at a 49-year low.

Additionally, this segment of the market is largely insulated from global upheavals as it derives most of its revenues from within the country. Moreover, the operations are less dependent on global logistics and supply chains (read: ETFs & Stocks to Shower Gains This Thanksgiving Week).


PQSG faces threats fromETFs like iShares Russell 2000 Growth ETF (IWO - Free Report) , iShares S&P SmallCap 600 Growth ETF (IJT - Free Report) and iShares Morningstar Small-Cap Growth ETF (JKK - Free Report) and Motley Fool Small-Cap Growth ETF (MFMS - Free Report) . IWO (0.19%) and IJT (0.07) beat PQSG in terms of expense ratio while JKK (0.30%) and MFMS (0.85%) are comparatively costlier bets (read: Are We Headed Toward Bear Market? ETFs to Save Your Portfolio).

iShares Russell 2000 Value ETF (IWN - Free Report) , iShares Morningstar Small-Cap Value ETF (JKL - Free Report) and  Vanguard Russell 2000 Value ETF VTVW pose competition to PQSV. While IWN and VTVW have lower expense ratios of 0.24% and 0.20%, respectively, JKL charges 0.30%.

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