Small-Cap Companies Can Offer Promise Of High Returns, But How Does One Find Winners Given The Risks Involved? A Look Inside Infracap's SCAP ETF

Small-cap companies are often overlooked by institutional and retail investors alike. They lack the sheen and popularity of the big names and often carry higher-than-average risk. Still, this volatility-related risk can be mitigated with a smart, active and well-diversified investing approach, and the returns can be lucrative.

That is exactly what the team at Infrastructure Capital Advisors aims to do with its InfraCap Small Cap Income ETF SCAP. The fund invests in a diverse set of small-cap companies seeking "above average yield" and "total return through a blended approach of capital appreciation and current income."

An Active Approach

Success in small-cap investing requires constant research and tireless effort in order to stay ahead of the curve. Infracap drives investing decisions using a mix of quantitative and qualitative analysis. This analysis allows the team to potentially surpass passive benchmarked funds that cannot adjust to changes in the market.

Tax Benefits

Traders who attempt to actively manage their own portfolio of small-cap investments can also run into myriad tax issues. Rather than selling securities, the structure of SCAP allows for an "in-kind" mechanism to meet redemptions. This means the ETF can avoid realizing capital gains, providing a favorable tax structure.

Performance

Although past performance is no guarantee of future performance, it is worth taking a look at SCAP's track record compared to passive small-cap alternatives. SCAP has risen 4.68% in 2024 so far. In contrast, the Russell 2000 Index has gained 3.13%, and the iShares Morningstar Small-Cap ETF ISCB is up only 2.09%.

Holdings

SCAP has 69 holdings, making it more targeted than many of its passive competitors. The fund's top ten holdings make up 38.2% of the fund.

SCAP's current 5 largest holdings are as follows:

1. iShares Russell 2000 ETF IWM – 14.20% of the fund – This ETF is passively benchmarked to the Russell 2000 Index.
2. MKS Instruments Inc MKSI – 3.13% of the fund – MKS is a supplier of technologies critical for semiconductor manufacturing.
3. Chord Energy Corp CHRD – 2.96% of the fund – Chord is an energy exploration company operating in the Williston Basin of North Dakota and Montana.
4. GoDaddy Inc GDDY – 2.94% of the fund – GoDaddy is a technology company providing domain registry and web hosting services.
5. Herc Holdings Inc HRI – 2.88% of the fund – Herc is a construction and industrial equipment rental company.

Featured photo by Markus Winkler on Unsplash.