Yardeni: Small-Cap Exodus Won’t Stall S&P 500

September 30, 2014


WisdomTree Bloomberg US Dollar Bullish (USDU | 67)

Yardeni has been calling for a stronger dollar since early 2014. He believes the trend will continue from foreigners "piling" into U.S. bonds and stocks. If you're on board with his contention, USDU provides solid "long-dollar" exposure against a basket of global currencies. Unlike the decades-old US Dollar Index, which is more than 60 percent weighted in the euro, USDU is a trade- and liquidity-weighted fund that provides short exposure to 10 different currencies, including the Australian dollar and some emerging market currencies. The euro and Japanese yen, combined, currently make up about 50 percent of the fund's weighting. Since its launch in December 2013, USDU has amassed more than $55 million in assets. Its $100,000 median daily volume is not much, but USDU has robust block liquidity. Spreads still average 12 bps, so limit orders are recommended.

Schwab Fundamental U.S. Large Company (FNDX | A-87)

Citing steep valuations on mid- and small-cap stocks, Yardeni sees "investors moving towards cheaper stocks" and points out that "most of them tend to be larger-caps." There are more than 50 broad-based U.S. large-cap ETFs to choose from, but one that fits Yardeni's valuation focus neatly is FNDX. The fund uses balance sheet metrics such as sales, cash flow, dividends and buybacks to select and weight its portfolio of more than 600 holdings. FNDX's expansive portfolio has an aggregate P/E near 18 compared with the steeper P/E's of 25 and 40 for mid- and small-caps, respectively. As investors have shifted toward large-caps, FNDX has returned close to 20 percent over the past year compared with 15 percent for midcaps and 11 percent for small-caps.

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