Are We Ready for a Small-Cap Comeback?
Small caps have been sidelined for years. While post-pandemic rallies boosted many stocks, small caps missed out. The 2022 tech slump and broader market correction prolonged their drought. But a small-cap rally could be imminent, especially with lower interest rates finally on the horizon.
Why Rates Matter for Small Caps
Cheaper capital fuels growth for small companies. Although 2024 started with hopes for significant rate cuts, delays until year-end tempered investor enthusiasm. Now, the Federal Reserve’s easing could provide the long-awaited tailwind small caps need.
Challenges Facing Small Caps
Unlike household names, small caps lack visibility and often face steep hurdles securing funding. This risk amplifies their cost of capital, making survival—and growth—more difficult. Yet, this volatility creates opportunities for outsized gains.
The Reward Potential
When small caps succeed, the results can be spectacular. A big earnings win or strategic breakthrough often sparks surging interest, driving share prices higher in illiquid markets. Early investors stand to benefit most, especially when holding a diversified basket of promising names. Patience here isn’t just a virtue—it’s a strategy.
Crafting a Small-Cap Strategy
Building exposure to small caps requires patience, diligence, and discipline. A well-diversified portfolio of about 25 stocks minimizes risk while optimizing potential returns. Look for companies with strong fundamentals, a proven leadership team, and consistent outperformance against Wall Street expectations.
Glenwood’s Approach
At Glenwood Financial Partners, we’ve been strategically increasing small-cap exposure since late 2023. Customized to a client’s unique portfolio, circumstances, and risk tolerances, we use a combination of targeted individual stocks, active ETFs and funds to focus on high-quality strategies like Shareholder Yield and Quality Growth. Our daily Reward-to-Risk assessments help us to identify top opportunities for client portfolios.
Currently, we’re preparing to add positions in select securities, capitalizing on attractive valuations and growth potential. Our goal? To further position clients for the “catch-up” rally potential we see ahead for small caps as very additive to core portfolios of much larger companies.
Michael Hakerem
Chief Investment Officer
Chartered Financial Analyst
