Investors may own GameStop and AMC without even realizing it. Two traders on the risks and rewards

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Investors may unwittingly have exposure to GameStop and AMC.

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Those two, the posterchildren of the retail trader and reddit movement, are among the largest components in the IWM Russell 2000 ETF.

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GameStop has been a large contributor to the XRT retail ETF’s 49% gain this year.

AMC and GameStop’s outperformance this year have helped these ETFs on the way up, but with so much volatility surrounding them, it also presents risk.

Nancy Tengler, chief investment officer at Laffer Tengler Investments, said investors need to know what they own. Speaking about AMC, she said the risk far outweighs the reward.

“This is a company whose management has a voracious appetite for capital — 104 million shares outstanding a year ago, 513 [million] now. Insiders are selling … and it’s got negative earnings to boot,” Tengler told CNBC’s “Trading Nation” on Monday. “I would be a seller as fast as I possibly could at these levels and investors … should be aware of what their largest holdings are in any ETF.”

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An upcoming rebalancing for the Russell 2000 on June 25 should minimize some of the risk, according to Ari Wald, head of technical analysis at Oppenheimer.

“The rebalancing will take care of that issue for investors on their own. These two stocks are only 2% combined of the Russell 2000 value ETF. So that’s the beauty of a diversified ETF, you get a little of that, you get a little of this,” Wald said during the same interview.

The Russell 2000, meanwhile, should continue to drive higher, predicts Wald.

“Small caps overall are positioned to break to the upside. We were on the show a couple weeks ago talking about an early summer rally. The Russell 2000 has formed a coiled spring. It appears to be breaking to the upside. I think that supports a summertime rally for stocks overall,” he said.

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The Russell 2000 has outperformed the S&P 500 in the past week, rising by 1.8% compared with the S&P 500’s gain of less than 1%. It is also beating the large-cap index year to date.

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