Between the artificial intelligence (AI) disruption trade — which has punished some large- and small-cap growth names — and conflict in Iran, some investors may be thinking now is an appropriate time to go into wait-and-see mode when it comes to smaller stocks.
It’s not illogical to feel that way. On the other hand, however, small-caps may be interesting contrarian bets over the short-term. Indeed, they could turn into winning wagers over the long-term. With that in mind, the Invesco NASDAQ Future Gen 200 ETF (QQQS) is among the small-cap ETFs market participants may want to peruse over the near-term.
QQQS allocates a third of its weight to technology stocks, so understanding the fund’s recent lethargy isn’t difficult. However, a case can be made that many of the ETF’s tech holdings have been unjustly punished. In fact, a fair amount are perhaps not as AI-vulnerable as some investors believe.
More QQQS Benefits
As has often been noted in relation to QQQS, the small-cap ETF has a substantial healthcare weight of 48%. That includes a slew of biotech names, which could be a plus for investors going forward.
“We provide a favorable view on biotechnology. Fundamental analysts in the space are bullish based on the strong M&A momentum at the end of 2025, and the prospect of a potential patent cliff could sustain deal activity into 2026. Positioning is light and valuations are acceptable, offering room for upside if sentiment improves,” noted Bank of America Research.
The bank said biotech stocks, broadly speaking, are attractively valued. Plus, looming patent cliffs for large-cap pharmaceutical companies could stoke a new wave of consolidation. That could benefit some QQQS holdings.
Going beyond sector exposures, QQQS could benefit from more accommodative monetary policy in the U.S. Recent employment data indicate the Federal Reserve may have no choice but to lower interest rates multiple times this year. It will potentially deliver at least one rate cut over the near-term, in hopes of boosting a sagging labor market.
“Investors have been buying small-caps on prospects for lower interest rates and fiscal stimulus lifting the U.S. economy,” reported Ian Salisbury for Barron’s. “Falling rates favor smaller companies, which tend to have higher financing costs and are more sensitive to rate moves than large-cap and megacap stocks. Interest rates have been declining and may fall more in 2026 if inflation doesn’t rear up, allowing the Federal Reserve to cut by 0.5 percentage points.”
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