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The 187 percent rise in US semiconductor giant Nvidia’s $3.44 trillion share price this year has been hard to ignore.
But let’s take a moment to focus on the 509 percent jump in shares of a smaller American technology company: MicroStrategy, a software company that primarily invests money in bitcoin, the world’s largest cryptocurrency.
It has been fueled by the bitcoin mania that followed Donald Trump’s election victory; Suddenly, cryptocurrencies have gained new respectability.
But the upward trajectory of MicroStrategy and other US small-cap stocks should also serve as a warning to UK investors who may be skeptical about cryptocurrencies but feel they should adjust their portfolios ahead of Trump’s arrival in the White House.
The rise in MicroStrategy shares reflects the growing conviction that American “small-cap” stocks are destined for stardom under the Trump regime, following an era in which Nvidia and the other “mega-cap” members of the Magnificent Seven of technology: Alphabet, Amazon, Apple, Meta, Microsoft and Tesla – have greatly enriched shareholders.
“Small” in this sense does not mean a family business, but a company worth millions or billions: the average market capitalization in the Russell 2000 index of smaller companies is $3.5bn (£2.8bn) .
Momentum: Donald Trump’s victory in the US election has sent cryptocurrencies soaring
This index has rebounded more than 15 percent this year, buoyed by enthusiasm for the prospects of lesser-known U.S. companies and Bank of America’s latest fund manager survey. Respondents to this hugely influential research acknowledge that the president-elect’s policies could stoke inflation, meaning interest rates would fall more slowly than expected.
However, they are optimistic about the outlook for all US stocks, in particular believing that smaller domestic-focused companies will be boosted by Trump’s plans to cut taxes and reduce regulation.
Such a move would allow them to compete more fiercely with larger competitors; Bureaucracy can impose a disproportionately heavy burden on smaller corporations. The introduction of import tariffs could also be a boon for small caps.
The energy, financial and industrial sectors are seen as the biggest beneficiaries of the suite of populist and other measures that the Trump administration could implement, but the prospects for other types of businesses could also improve.
Blair Couper, chief investment officer at Abrdn, says: ‘Financial companies such as banks could do well if rates stay high for longer. If the cost of borrowing remains high, real estate businesses could be negatively affected, but this could be offset by Wall Street’s positive reception to Trump’s policies.
At the same time, barriers to acquisitions could be dismantled, allowing predators to snap up more companies at incredible premiums.
Wall Street believes that the current head of the Federal Trade Commission, Lina Khan, is about to be replaced by an official who would be much happier presiding over a surge in mergers and acquisitions activity.
Bank of America analyst Jill Carey Hall has already named some potential acquisition targets.
The list includes Apogee Enterprises, a manufacturer of architectural glass products, Bread Financial, a lender, and shipping company Scorpio Tankers.
Other analysts have cited companies like Hims & Hers Health, a telehealth platform whose shares have plummeted following the news that Amazon will also offer consultations on topics such as hair regrowth.
Hims and Hers is one of the holdings of Legal & General’s L&G Russell 2000 US Small Cap Quality ETF. The fund also has a stake in Mara, a bitcoin ‘miner’.
These computers process the transaction after the creation of a new bitcoin. A lot of complex mathematics goes into the process.
Also in the portfolio is Phoenix-based Sprouts Farmers Market, whose shares have risen 248 percent in the past year to $146 on the belief that more Americans will adopt healthier diets and be interested in consuming beef. grass-fed beef from this supermarket. organic milk and vegan snacks. Kirsty Desson, manager of the Abrdn global small business fund, also highlights a group of stores: Casey’s, which operates gas stations on its premises and is the fifth largest pizza chain in the US.
Desson says: ‘Casey’s operates in rural areas and small towns and targets low to mid-level consumers. In other words, voters are most likely to seek to benefit from Trump’s ‘Make America Great Again’ policies.
Desson likes Wintrust, a Chicago-based regional bank whose shares have risen 42 percent this year. This institution should be able to increase its lending and also take full advantage of consolidation in its sector, as regulation becomes less strict and the pace of mergers and acquisitions accelerates. Lack of familiarity with Wintrust and other US small-cap names can make a foray into this area seem daunting.
The Magnificent Seven Titans are well-known names whose services we use or whose brands we know.
These giants have already greatly enriched their shareholders, and there may be more gains to come as the artificial intelligence industrial revolution advances.
However, it seems sensible to try to take full advantage of future trends in the US economy.
I plan to pump some cash into funds like Artemis US for smaller companies, Interactive Investor’s fund recommendation, and Premier Miton US Oportunidades, which is the Fundcalibre platform’s pick.
Jason Hollands of Bestinvest is also in favor of this fund: ‘It is solid, not bold or speculative; Small- and mid-cap stocks make up 75 percent of the portfolio.
He also suggests the Federated Hermes US SMID stock fund. Its director, Cormac Weldon, argues that “investing in smaller American companies is a way to more directly capture the complexities of the American economy.”
More skeptical investors may believe that Trump could be dangerous for the United States, as trillions could be added to the national debt.
It’s worth noting, however, that Trump, a New Yorker, craves the good opinion of Wall Street, which is the city’s most powerful industry. He also knows that Americans take satisfaction in skyrocketing stock prices.
Veteran investor Warren Buffett’s assertion that “you should never bet against the United States” has proven largely reliable.
But widening the spreads on these bets from mega-caps to small-caps might be a good idea at this point.
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