MFAM Small Cap Growth ETF: Fourth Quarter 2018
|Performance as of 12/31/2018|| |
Since Inception (Annualized)
Inception Date: 10/29/18
Motley Fool Small-Cap Growth ETF NAV (MFMS)
Motley Fool Small-Cap Growth ETF Market Price (MFMS)
Russell 2000 Growth Index
Gross Expense Ratio 0.85%. The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher. The investment return and principal of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. For performance as of the most recent month end, please call 1-800-617-0004. Short term performance, in particular, is not a good indication of a fund’s future performance, and investments should not be made based solely on returns.
The Motley Fool Small Cap Growth ETF launched during the worst quarter for domestic small-cap stocks since Q3 2011. Small-cap stocks, as measured by the Russell 2000 Index,* fell 20.5% during the quarter. That sounds bad, but let’s not panic. Before that fall, the market was coming off a strong three-year run during which prices seemed to only go up. As of the end of the year, the Russell 2000 was back to where it was in the fall of 2017.
With the profit growth that’s occurred over that period, we find that small caps are more attractively priced than they’ve been in years.
As for our results, the ETF launched four weeks into the quarter, missing the beginning stages of the market’s fall. From inception on Oct. 29 through the end of the year, the ETF declined 5.87%, compared with a drop of 7.50% for its benchmark, the Russell 2000 Growth Index.*
Curiously, we saw a disconnect between business performance and falling share prices during the quarter. The final tally for the Q3 earnings season was that 74% of companies in the ETF beat earnings estimates. The message coming from the management teams of these companies was that business is good. A lot of our tech and healthcare companies were even raising full-year guidance. Still, stock prices fell.
It’s important to keep in mind that the companies we own are primarily exposed to the U.S. economy. We don’t have a lot of direct exposure to international markets, and that includes China, which is dominating financial headlines these days.
While we’re entering 2019 in a bear market for small caps, we’re still optimistic about the year to come. As I write, the Bureau of Labor Statistics reported much stronger jobs growth than was expected for December. We take that data as confirming what our companies were telling us about the strength of the U.S. economy.
The ETF closed the year with 61% of assets in healthcare and tech companies. This makes sense given our investing style. We want to find the great growth companies of the next decade, and we believe that disproportionately those companies will be in healthcare and tech.
Consider Teladoc Health, which, as the leader in virtual healthcare, has one foot in each sector. A sick person can set up a video call with a medical professional within minutes and, if needed, have a prescription sent to a pharmacy. Not only is this amazingly convenient, but it also costs less than visiting a family doctor or the emergency room. That’s a powerful combination, in our opinion.
We don’t know what the year ahead will bring, but we can promise you that we’ll stick to our investment process that identifies high-quality growth companies and that we’ll focus the ETF in our best ideas.
You can see the full list of holdings in the ETF, updated daily at https://www.mfamfunds.com/mfam-small-cap-growth-fund.html .
*Holdings are subject to change. Holdings and percent of assets are based on security assets only, not including cash or receiveables (unpaid interest and dividends).
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