Goldman Sachs sees opportunity in small-cap stocks – even as the Russell 2000 ends its worst week since early January. Greg Tuorto, who manages the actively managed Goldman Sachs Small Cap Core Equity ETF (GSC), believes easier financial conditions should help boost the group. But his view comes with a caveat. “I do think you have to be very selective with small-cap stocks because things can go down very quickly,” he told CNBC’s “Fast Money” on Thursday. The firm’s small-cap portfolio manager advises Dig deeper behind the benchmark small-cap index to identify high-quality stocks. As of Friday, FactSet showed Federal Signal Corp., SPX Technologies and Core & Main as top holdings in his fund. “In Russell 2000, you probably have a lot of things you don’t want to have,” he said. “If you look at some of the companies that are not necessarily the largest portion of the benchmark, you’ll find a large number of unprofitable companies. But in the $2 to $5 billion range, you’ll find some companies that can create their own weather.” Even After falling this week, the Russell 2000 was still up nearly 2% this year as of Friday’s close. Meanwhile, Goldman Sachs’ exchange-traded funds outperformed the index, rising nearly 8% over the same period. Tuoto believes that interest-rate sensitive groups are preparing to catch up ahead of the Fed’s expected easing policy. “Other financial conditions have eased, which will also help small caps. I do think more clarity on interest rates will be beneficial to the group,” he said. The semiconductor industry, which Nvidia dominates in 2024, could soon become a proving ground for small-cap stocks, Tuorto said. He lists Cohu and Onto Innovation as his two top picks in the field. “We think (they) can benefit from a significant recovery in products like chips and high-bandwidth memory, similar to Nvidia’s growth,” he said. “You need high-bandwidth memory to make these artificial intelligence machines run.” Tuoto also thinks consumer-facing stocks in his sector are likely to continue to outperform — citing solid consumer spending. He emphasized the strong management capabilities of Shake Shack restaurants and the new Cava restaurant. “Consumers are making a very wide range of choices in how they spend their money,” he said. “We really like the restaurant theme, and Shake Shack and Cava are two companies that really focus not only on their menu but also on loyalty, but also their management teams. Very, very efficient in real estate”.
