SMID-Cap Strategy Thoughts and Observations

The report suggests a near-term cautious stance on small caps following a high-beta-led rally, advocating for a consolidation phase despite improving long-term earnings growth and attractive relative valuations.

Key Takeaways

• 1.Small caps have experienced a significant bounce, but valuation models are in the 87th percentile, suggesting a 'pause that refreshes' is necessary.
• 2.The market remains highly concentrated with less than 35% of Russell 2000 names outperforming the index, despite broadening earnings growth.
• 3.M&A activity is a key tailwind for small caps, with '25 seeing the 2nd highest deal activity historically and momentum continuing into '26.

Table of Contents

• Are things too good for Small Cap these days?
• Plenty of positives support our Case for Small Caps
• The need for "the Pause that refreshes"
• Outperformance cycle rolls along, but has become narrow again
• Positioning & Themes
• Sector Allocation
• Earnings outlook
• Small is more expensive on an absolute & relative basis

Document Preview

Page 1 of 5

Subscribe for full accessStart Free Trial