Why Small Caps Now

The last decade has been a story of large cap outperformance. Since June 2003, the Russell 3000 Index has grown four-fold, largely on the strength of the large cap companies in the Russell 1000 Index. The market capitalization of the next two thousand companies in the Index has fallen from a high of 9.5% to a twenty-year low of 5.5% in the spring of 2023. You can make the argument that large cap stocks are expensive or that U.S. small caps are cheap. We will focus on the latter, with small cap valuations low versus their larger peers as well as against their own history. Starting at a low in valuations and weaving in multiple tailwinds that could support small cap performance in the years ahead, we believe now may be the time for investors to take a second look.

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