Frequently underrated but always in the conversation, small caps can sometimes offer big performance. New analysis from American Century Investments confirmed this with findings to show outperformance that has continued steady since “Liberation Day” last year. The day that the sweeping tariffs set in and has since represented an important marker for markets. For small caps, it ignited a growth period and big enough performance for investors to pay attention.
See more: ETF of the Week: American Century Quality Diversified International ETF
American Century Investments Vice President & Senior Investment Director, Mike Rode (CFA), has paid very close attention and based on his findings from Factset data, he identified an important trend. Using the Russell 2000 and Russell 1000 indexes to compare small and large caps, he found returns of 32.9% and 23.8%, respectively.
Small Caps & the ETF Wrapper: Opportunities on the Horizon?
Rode explained that the decrease in interest rates over the last year, potentially bigger than normal tax returns and even the ongoing reshoring trend could all be factors significantly benefitting small caps. Hey also pointed out that being cheaper than large caps, makes a them a potentially easier space in which to operate.
“We believe now may be a good time for investors, especially those concentrated in Mag 7 or artificial intelligence (AI)-related stocks, to consider diversifying into asset classes that show earnings acceleration and offer attractive valuations,” Rode wrote.
That’s where ETFs such as the American Century Small Cap Value Insights ETF (ACSV) come in. ACSV charges a 49 basis point fee to actively invest in small caps meeting quality and value standards.
By emphasizing fundamental research to identify opportunities while managing portfolio-level risk, this approach finds small caps able to withstand volatility — and boom when conditions shift. The strategy actively seeks better opportunities as they arise, incorporating assets like REITs as needed. As markets continue to reel from energy price fluctuations, an active take on small caps provides a powerful, flexible tool for managing uncertainty.
Launched in October, that strategy has already helped ACSV outperform its ETF Database Category average on a YTD basis. It is definitely worth watching as a promising tool for small caps exposure with an active, fundamentally-driven twist. With the ETF wrapper’s tax efficiency, it could also provide a useful alternative to slower mutual funds that invest in small caps.
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