Federated Hermes MDT Small Cap Core ETF (FSCC) seeks to track small-capitalization U.S. stocks using MDT's proprietary core investment approach. This actively managed small cap equity ETF targets companies with market capitalizations typically between $300 million and $2 billion, focusing on undervalued securities with strong fundamentals and growth potential.
How It Works
FSCC employs an actively managed approach using MDT's quantitative and fundamental research to select small-cap stocks. The fund combines bottom-up security selection with top-down sector allocation, focusing on companies with attractive valuations, quality earnings, and positive momentum indicators. Portfolio managers can hold 50-100 positions with quarterly rebalancing based on changing market conditions and company fundamentals. The strategy emphasizes risk management through diversification across sectors while maintaining concentrated positions in highest-conviction ideas.
Key Features
- Zero expense ratio launch offering provides significant cost advantage over typical small-cap ETFs charging 0.60-1.20% annually
- Active management by MDT allows tactical positioning and stock selection beyond passive index constraints
- Recently launched in July 2024, representing newest approach to small-cap core investing with modern portfolio construction
Risks
- This ETF can lose value if small-cap stocks underperform, which historically occurs during economic uncertainty when investors favor larger, more stable companies
- Active management risk means the fund could underperform passive small-cap indexes if stock selection or timing decisions prove incorrect
- Small-cap stocks typically experience 20-30% higher volatility than large-caps, with potential for 40-50% declines during bear markets
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for investors with 3+ year time horizons seeking active small-cap exposure. High risk tolerance required due to small-cap volatility and active management uncertainty. Appropriate for investors wanting professional stock selection in the complex small-cap space while benefiting from zero fees during launch period.