Small Cap Outperformance Driven by Profitable Companies This Year

“So you know there's been different forces driving small caps And you're right, John, it's been the trailing two year period that Russell two thousand is pretty handily outperforming the S and P five hundred, So this is not some new story a couple of years ago. I think the impetus for the initiation of that outperformance was a move by the FED toward easier monetary policy. Of course, we've had fits and starts with that. Almost two years ago the FED and barked one an easy campaign. After three cuts that included a fifty, they had to pull back because the economy accelerated again. Same thing happened last year when the fedembarked, but then you had the much more sticky inflation problem driving that. And I think now the story is one about opportunity in that let me look beyond just the megacap AI plays and look for opportunity, and you're finding it a their areas like healthcare and like biotech and smaller names. But what I would say about the small cap space is last year was a year where the non profitable components of the Russell two thousand had double the performance of the profitable components. It was up twenty percent versus up ten percent. That is starting to shift this year, and you're seeing this convergence where you where you have a little better performance on the part of the profitable. So that's the way I look at the small caps. I would sort of lean into the profitable side, the higher quality, the high interest coverage and strong cash flows, and fade the nonprofitable, lower quality segment.”