For all the talk about small-cap struggles, major gauges tracking those equities have put together impressive showings over the past 90 days. In some cases, they’ve notched double-digit gains. That indicates the asset class has been responsive to interest rate cuts by the Fed.
Some market observers believe small-caps’ recent strength isn’t just a positive sign. It could be encouragement for investors to look beyond the most basic index strategies addressing this corner of the equity market. That can be accomplished with the O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM ).
The $917.8 million fund goes beyond what’s found with many legacy products in the small-cap ETF category. The ALPS funds emphasizes dividends, low volatility, and quality. Those factors can make it easier for investors stay engaged with smaller stocks over long time horizons.
Good Time to Consider OUSM
OUSM could rally into year-end. That could potentially positioning itself as a 2026 small-cap consideration for investors. The reasons for that outlook extend beyond the fund’s virtuous methodology.
“We believe small caps present a strong investment opportunity. Easing cycles have historically been supportive given the sensitivity of small caps to interest rates. Valuations, including US and international small caps, remain attractive, and earnings growth is set to accelerate. A resurgence in dealmaking is injecting further optimism into the market,” observed Goldman Sachs Asset Management (GSAM).
To be clear, OUSM wasn’t directly mentioned in the GSAM report. But the asset manager notes “more nuanced” approaches to small-cap investing could reward market participants. In other words, OUSM could be an avenue for investors looking to defray small-cap risk while possibly harnessing some alpha.
GSAM also pointed out that at the sector/industry level, aerospace/defense, strong consumer names, healthcare and technology are the groups to focus on in the small-cap space. Good news: OUSM allocates a combined 63% of its roster to those four sectors. Plus, small-cap earnings growth remains impressive while valuations aren’t taxing.
Strong Rebound Signs
“US small-cap earnings are showing signs of a strong rebound. In the second quarter of 2025, they recorded their first positive earnings, fueled by improving sales and margins,” concluded GSAM. “Notably, 25% of Russell 2000 companies have reported at least two consecutive quarters of accelerating earnings. This momentum is expected to extend into 2026, enabling small-cap earnings to catch up with—and potentially surpass—large caps.”
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