Goldman Sachs sees opportunities in small stocks — even as the Russell 2000 finishes with its worst week since early January. Greg Torto, who runs the actively managed Goldman Sachs Small Cap Core Equity ETF (GSC), believes easing financial conditions would help boost the group. But his point comes with a caveat. “I think you have to be very selective in small businesses because things can go bad very quickly,” he told CNBC's Fast Money on Thursday. The firm's small-cap portfolio manager suggests looking under the cover of the small-cap benchmark index to identify high-quality names. As of Friday, FactSet showed Federal Signal Corp, SPX Technologies and Core & Main as his fund's largest holdings. “Within the Russell 2000 framework, you have a lot of things that you probably don't want to have,” he said. “There are a lot of companies that are not profitable if you look at some of the names that are not necessarily in the bulk of the index. But in that $2 billion to $5 billion range, you can find some companies that can make their own weather.” And even with Losing Week The Russell 2000 was up about 2% for the year, as of market close on Friday. Meanwhile, Goldman's exchange-traded fund outperformed the index, rising nearly 8% in the same time frame. Torto asserts that the interest rate-sensitive group is preparing to play catch-up ahead of expected easing by the Federal Reserve. “Other financial conditions have improved a bit, which is also good for small businesses. I think more clarity on the interest rate will be a nice tailwind for the group,” he said. According to Tuorto, the semiconductor industry that Nvidia dominated in 2024 could soon become a proving ground for small companies. He listed Cohu and Onto Innovation as two of his top picks in this space. “We believe [they] “It could benefit from a big boom in chips and things like high-bandwidth memory, which is similar to Nvidia's growth,” he said. “You need that high-bandwidth memory to get those AI machines humming.” Torto also believes that engaging with the consumer is difficult. Stocks in his universe could continue to outperform – pointing to strong consumer spending. He highlighted the strong management profile of the newly listed Shake Shack and Cava restaurants. “The consumer has very broadly chosen with their feet as to how they spend their money,” he said. “We love the restaurant theme a lot and Shake Shack and Cava — two companies that are really focused on not just the menu, but loyalty, and are run by management teams that have been very, very effective on the real estate side of things.”
