Having exposure to quality small caps can provide healthy returns to a portfolio. I believe small cap exposure is a key area of the “Ride My Bike” Portfolio.
The Vanguard small cap ETF has returned 50% over the last year. Perhaps there is more room to run as malls and the overall economy continue to “open up” and accelerate.
SMALL CAP OPPORTUNITIES
A year ago L Brands (parent company of Victoria’s Secret) was at about $13/share. The stock now sits at around $62/share. L Brands is in the middle of a re branding campaign that is sure to get attention and increase sales. They are adapting with the times in order to capture more market share. They will also spin off VS in August.
- Sum of the two parts is significantly higher than current valuation.
- Already announced buybacks will close the valuation gap
- From seeking alpha:”While the death of the mall is a popular sentiment in many investment circles, LB is proving that it can thrive despite the changes in consumer behaviors. It is growing sales at its physical stores and quickly ramping its direct to consumer business.I think the separation of the lower valued/slower growing Victoria’s Secret from Bath and Body Works makes all of the sense in the world. I also think the two companies will be conservatively capitalized and generate meaningful cash flow that they will return to shareholders very steadily over time.”
5 things L Brands is doing to try to accelerate Victoria’s Secret’s turnaround
- Victoria’s Secret has signed deals with new brand ambassadors from diverse backgrounds. All are activists who have been outspoken about inclusivity.
- The company brought in a new executive team in November, and all but one of the new directors for Victoria’s Secret’s upcoming board will be women.
- The lingerie brand will release new products including maternity and nursing bras following the success of its first Mother’s Day ad.
This does mean that the “Angels” have been retired. The brand will now display a more varied range of body styles that are more realistic and feature more mature women. All good stuff. But the point here is not small lingerie, it’s small caps.
$VB & $XLY
With companies like L Brands and VS, I prefer exposure through diversified ETF’s. Small caps in general can have higher risk/reward profiles, so although I choose a few to invest in, I like Vanguard small cap ETF (VB) for broad exposure to quality small caps.
Another way to gain exposure to a company like L Brands and many others is through Consumer Discretionary Select SPDR Fund (XLY). This is a combination of large, mid and small caps. It captures the appetite for folks to get back out in the world post pandemic and spend some money!