Astoria Portfolio Advisors' John Davi foresees a multi-year surge in the financial sector, driven by anticipated deregulation under the Trump administration. This potential shift is expected to create significant momentum for two distinct market groups: large banks and small-cap stocks. Recent performances indicate a promising outlook, with the VictoryShares Small Cap Free Cash ETF rising nearly 10% since the beginning of the year and an impressive 49% over the past 52 weeks. The Russell 2000, which tracks small-cap stocks, has also experienced a substantial increase of approximately 17% over the past year.
John Davi highlights the attractiveness of bank stocks, noting their strong earnings potential even before the new administration's policies take effect.
"The funny thing about the banks is that they were actually from an earnings standpoint fundamentally getting very attractive prior to the Trump administration." – John Davi
This optimism is mirrored in the recent performance of major financial institutions. Shares of Goldman Sachs, JPMorgan Chase, and Morgan Stanley recently reached record highs, underscoring the sector's robust growth potential. Investors seeking to capitalize on this trend may consider the Invesco KBW Bank ETF, which offers exposure to these banking giants.
The VictoryShares Small Cap Free Cash ETF, which targets "quality small cap companies, trading at a discount with favorable growth prospects," also presents a compelling investment opportunity. Its top holdings—Royalty Pharma, Oscar Health, and Jazz Pharmaceuticals—differ from those of the Russell 2000, providing a unique investment profile. Todd Rosenbluth from VettaFi supports this view, suggesting that small-cap stocks could thrive under the Trump administration due to their limited multinational exposure.
"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." – Todd Rosenbluth
For investors interested in small-cap stocks, Rosenbluth recommends the T. Rowe Price Small-Mid Cap ETF and Neuberger Berman Small-Mid Cap ETF as viable options. These ETFs focus on companies with high-quality attributes and strong free cash flow generation while incorporating a growth filter.
"takes a focus on companies with high quality, strong free cash flow generation, but it has a growth filter to it." – Todd Rosenbluth