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US Stocks - Small Cap

ETFS: IWM IJR VB - GLOBAL EQUITIES TEAM, SEPTEMBER 19, 2014


TRADE SUMMARY


- Stay long the US small cap market (ETFs: IWM, IJR, and VB).
- The BUY rating was opened at 624.24 on 7/20/2010.
- The BUY rating has already helped investors earn potential gains of 90.14%.
- Our target return is 29.92%.
- While the original target has already been reached, we maintain our BUY rating because we believe the market will continue to perform well.

ANALYSIS


We continue to favor gaining exposure to the small cap market.

Our macro outlook on the US is basically constructive. Our basic read on the macro picture is quite positive, so we are less concerned about some of the things (credit risks, re-accelerating inflation) that some visitors have worried about. The improving economic cycle in the US has always been the biggest driver of our more positive view, and our economic and market indicators are positioned to support an extension of the price increase that could last through several months and take US cyclical assets on a decent growth path. And from that perspective we believe that investors will continue to prefer the small cap stock market.

The US's macro data has continued to be better. The increase in personal income for last month was strong, and the report included substantial upward revisions to the previously reported data for prior months. The health of US bank balance sheets has also improved markedly over the last few quarters, as loan default rates are dropping back toward normal levels. On the other hand, the decline in the unemployment rate has led to further declines in credit losses in the US. Moreover, with improved effectiveness in counter-cyclical policy management, our confidence in the growth story in the US remains high.


As we have shown before, the small cap stock index on average does significantly better when the momentums of economic indicators in the US are rising than when they are falling. In addition, profit trends and credit metrics will continue to improve based on our central views, supporting US equities and other US risk assets. For long-term investors, this environment has created a number of opportunities in US small cap equities in our view. In conclusion, we have high conviction in the positive strategic story for the small cap stock index.

If you also have a positive view on the small cap market, please feel free to 
  
 us.