With Lightweight Competitors Potentially Poised To Bounce Back, Infrastructure Capital Small Cap Income ETF Deserves A Closer Look

Associated Press

29-05-2025

By JE Insights, Benzinga
DETROIT, MICHIGAN - May 29, 2025 ( NEWMEDIAWIRE ) - For the equities market, President Donald Trump's Liberation Day initiative – essentially a set of sweeping new tariffs announced in early April this year – represented something akin to a mini-catastrophe. Following the announcement, the Dow Jones Industrial Average plunged 1,178 points, representing a loss of 2.7%. Investors found themselves scrambling to understand the broader implications of the move, but small-capitalization companies especially found the matter troubling.
Historically, small businesses are a key backbone of the U.S. economy, helping to drive broader growth and employment metrics. Furthermore, when circumstances improve for the rest of the market, small caps tend to rebound harder. As such, opportunistic investors tend to focus on smaller enterprises when positive momentum builds in certain sectors.
However, in the current market recovery, small caps have conspicuously underperformed their larger counterparts. In the trailing month, the benchmark SPDR S&P 500 ETF Trust gained over 5% of value, leading to a year-to-date loss of 1.19%. On the other end, the iShares Russell 2000 ETF gained over 4% in the past 30 days as of this writing, which still translates to a year-to-date loss of more than 8%.
Notably, the ratio between the IWM and SPY exchange-traded funds continues to hover around levels last seen 24 years ago, indicating that market participants prefer large, multinational firms amid ongoing macroeconomic volatility.
On the surface, such a circumstance may seem unconducive for the Infrastructure Capital Small Cap Income ETF (ARCA: SCAP), an actively managed fund by Infrastructure Capital Advisors, better known as Infrastructure Capital. However, those with a contrarian and forward-looking mindset may want to keep close tabs on SCAP.
Down But Not Out: Why The SCAP ETF Brings Relevance To The Table
According to analyst Michael Gayed, CFA, a clear reason exists for why small companies have consistently lagged their larger rivals. 'These companies are likely to be more negatively impacted by tariffs because of their lesser ability to shift supply chains quickly and the comparative lack of financial resources to be able to handle higher costs,' stated Gayed.
It comes down to the mathematical realities of the business world. Large corporations generally command more diversified operations and, as a result, enjoy pricing power – the ability of an enterprise to raise prices without losing market share to the competition. This edge allows large caps to weather tariff-related shocks better compared to smaller, domestically focused entities.
At the same time, forward progress related to the tariff environment is evident. Earlier, President Trump's aggressive rhetoric on trade – especially against key economic partner China – sparked widespread anxieties. While it's too early to say that a solution has been reached, both the U.S. and China have agreed to de-escalate their trade war by cutting tariffs.
Subsequently, this U-turn on tariff policies has opened the door for a transition in market leadership. Gayed points out that investors who had bet against small caps may need to rethink their thesis. 'If the Liberation Day tariffs have been largely responsible for small cap underperformance, wouldn't it stand to reason that a reversal of those policies could inspire them to lead?' he stated.
It's this inquiry that makes the SCAP ETF relevant under the present circumstances. As an actively managed fund, the SCAP can navigate around the pitfalls that could ensnare passive small cap funds. Indeed, the performance metrics speak for themselves.
In the trailing month, SCAP gained nearly 5%, outpacing the Russell 2000 index's 4.2% lift during the same period. Since the January opener, SCAP lost 7.5%, a conspicuous improvement over the Russell 2000's loss of 8.53%.
Breaking Down The Mechanics Of The Infrastructure Capital Small Cap Income ETF
Primarily, the SCAP ETF offers an alternative investment vehicle for contrarian investors thanks to its active stock selection process. While small caps tend to outperform larger peers during upswings, this dynamic doesn't affect all lightweight enterprises. Because small caps tend to be more volatile, it's vitally important for investors to avoid high-risk securities.
What makes the selection process stand out compared to other actively managed funds is the rigorous criteria involved. For entities to make up the funds under SCAP's umbrella, the prospects must demonstrate financial viability, such as:
This discerning process helps SCAP filter out woefully unprofitable or speculative ventures which may drag down passive funds. In addition, SCAP leverages the advantage of enhanced yield through strategic tools, namely, income generated through writing (selling) options.
Options represent derivative contracts of underlying securities and afford far greater flexibility than merely buying and selling stocks in the open market. Specifically, traders can utilize both debit and credit-based strategies, thus enhancing portfolio performance.
Writing options falls under the credit-based approach. Here, traders underwrite the risk that the underlying security will not reach a defined profitability threshold within a given time period. In exchange for underwriting this risk, option writers receive the premium from the debit side of the transaction as income. This income is referred to as the yield.
Infrastructure Capital's other popular product, the Virtus InfraCap U.S. Preferred Stock ETF (ARCA: PFFA), utilizes a similar option-writing strategy. This approach allows investors to productively enjoy the benefits of credit strategies that are not available for simple open-market transactions.
Nevertheless, credit-based strategies suffer a unique danger known as tail risk. Essentially, tail risk is the variable risk that materializes from a credit-based trade that has gone awry. Such losses can easily derail multiple positive trades that have occurred in the past, necessitating competent leadership in active management.
For investors of both SCAP and PFFA, they can rely on the skills and experience of Jay D. Hatfield, Infrastructure Capital's Founder, CEO and Portfolio Manager. A Wall Street veteran with nearly 30 years of experience, Hatfield brings a deep understanding of income-generating assets. Thanks to his broad perspective on the U.S. financial markets, he has a keen ability to navigate the ebb and flow of price discovery.
A Rebound Prospect Built On Fundamentals
Small cap stocks have been hammered in 2025, lagging far behind their large-cap counterparts amid tariff headwinds and investor risk aversion. But with signs emerging of a policy reversal and improving trade dynamics, the case for a small cap rebound is gaining traction. In this shifting environment, the Infrastructure Capital Small Cap Income ETF could offer contrarian investors a compelling edge – particularly given its active approach and income-enhancement strategies.
Unlike passive funds that blindly track volatile and often speculative small cap indexes, SCAP applies a rigorous selection process focused on dividend-paying companies with strong earnings, cash flow and attractive valuations. The fund also leans into option-writing and modest leverage to bolster yield – tools that require experienced hands to manage effectively.
Importantly, investors don't have to go it alone, as SCAP, alongside its preferred-stock counterpart PFFA, is managed by a seasoned Wall Street veteran known for his disciplined income strategies. In an uncertain market, that leadership could make all the difference.
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