InfraCap Backs Small-Cap Growth Potential with New Active ETF

InfraCap Backs Small-Cap Growth Potential with New Active ETF


Investors who remain bullish on small-cap stocks have a new active exchange-traded fund (ETF) to add to their watchlist.  

On December 11, Infrastructure Capital Advisors launched on the New York Stock Exchange Arca under the ticker “SCAP.”

The fund will select U.S. small-cap value stocks. It aims to deliver both income and growth potential through the active ETF. The funds’ holdings may include common or preferred stocks, equity-linked notes, convertible securities, debt instruments, or other small-cap-focused ETFs.

SCARP marks the fifth ETF issued by InfraCap, which manages over $1.5 billion in assets. Others in its line up include the Virtus InfraCap U.S. Preferred Stock ETF (PFFA), the InfraCap REIT Preferred ETF (PFFR), the InfraCap MLP ETF (AMZA), and the InfraCap Equity Income Fund ETF (ICAP). 

With SCARP, InfraCap’s management sees a chance to buy a potential small-cap dip. 

“Small-cap stocks are trading at historically low prices and may be poised for a bounce-back year in 2024,” says Jay Hatfield, who serves as both InfraCap’s founder and the manager of SCARP.

“We believe that substantial alpha can be added through active management of the less efficient small-cap sector,” Hatfield added.

Investors and advisors understand the role that small-cap exposure can play in a growth-focused approach,” he added. 

Hatfield believes “the role this kind of exposure can play in an income-generating portfolio” is “less understood.”

Puny Returns? 

The small caps have clocked tiny gains this year when compared to their mega-cap counterparts.

The Russell 2000 – the leading index for small-cap stocks – is up just around seven percent year-to-date. Meanwhile, the Nasdaq – which tracks big tech tickers like Apple, Meta, Nvidia, and Tesla – is up almost 40 percent. 

However, there remains a case for netting more minnows as the economic tide turns.

In July, the Financial Times pointed out that small caps held an enviably low price/book ratio when compared with the S&P 500 at the time, positing small caps could do well in the event of a soft landing scenario for the US economy.  

Fortunes may change for the little guys in 2024.

In a recent note to Goldman Sachs analyst Greg Tuorto acknowledged mega-caps won over Wall Street in 2023, especially as higher interest rates lead many investors feeling nervous about the health of small caps’ balance sheets.

“Small caps have not been a fun place to be in 2023,” he wrote.

Yet the market may be underestimating the potential of smaller, nimbler firms to optimize new technologies and seize the initiative in their industries. 

 “We think that small caps are a great place to access disruptive innovation, because these companies have significantly more leverage to the mega-trends that are out there today,” he added.

SCAP is currently swapping hands for around $30 mark. It charges an expense ratio of 80 basis points. 

This article was produced and syndicated by Wealth of Geeks

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