We believe small caps are set up for success in 2026 on the back of global cyclical strength, continued earnings recovery, and renewed capital market activity. Additionally, valuations continue to be attractive both on an absolute and relative basis. In the US, small caps trade at a ~25% discount to large caps (excluding unprofitable firms), near historic lows. Outside the US, international small caps, which typically trade at a premium, are now roughly on par. However, dispersion is wide, volatility high, and liquidity low, making selectivity key.
