SMIDcap stocks may hold particular appeal for investors this year, given large- and megacap concentrations in major indexes. The T. Rowe Price Small-Mid Cap ETF (TMSL ) is worth consideration, given its outperformance within the category.
The actively managed strategy expands beyond the constraints of small- and mid-cap indexes. It pulls from a starting universe based on the Russell 2500 Index, outperforming small-caps and the Russell 2500 benchmark YTD. As of February 6, 2025, TMSL offered a total return of 6.00%, according to Y-Charts data. It’s currently 200 basis points above the benchmark Russell 2500, measured using the iShares Russell 2500 ETF (SMMD ). SMMD is up 4.00% YTD, while the iShares Russell 2000 ETF (IWM ) is up 3.48% over the same period.
Looking back over the last 12 months, TMSL also generated better total returns than the Russell 2000 and the Russell 2500, using IWM and SMMD, respectively. T. Rowe Price reported that from the fund’s inception in June 2023 through December 2024, TMSL had an annualized total return of 18.41% compared to the Russell 2500 Index’s 14.19%.
TMSL Drills Down on Individual SMIDCap Company Performance
TMSL invests in small- and midcap companies. The actively managed strategy focuses primarily on individual company analysis first, but also considers broader trends and market cycles. The managers seek those companies that demonstrate high return on capital, attractive relative valuations and operating margins, and with a solid balance sheet and management.
Companies considered for inclusion also demonstrate earnings and cash flow growth. The management team looks for companies that may demonstrate a competitive advantage that could potentially lead to growth in the near term and across market cycles.
By investing in small- and mid-cap companies, TMSL adds diversification to equity portfolios. This could be particularly beneficial for portfolios that are overweight in the information technology sector. As of December 31, 2024, the top three sectors by weight were industrials, at 20.42%; financials, at 18.34%; and consumer discretionary, at 13.84%.
TMSL carries an expense ratio of only 0.55%, which is competitive for a fully active SMID-cap portfolio. With performance well beyond the indexes after expenses, TMSL seems to be proving it’s active management value proposition.
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