The strong run by the Nasdaq-100 and the S&P 500 the last few years has loaded portfolios with heavy concentration risk. As a tiny group of mega cap tech giants shapes the market, finding meaningful diversification has become a priority for advisors. Data from last week’s VettaFi Mid-Year Market Outlook Symposium confirms that wealth managers are actively looking down the market-cap spectrum to rebalance risk.
Key Takeaways
- Small- and mid-cap additions are a priority for the 39% of surveyed advisors looking toward the second half of 2026.
- Innovation stretches far beyond mega-cap tech stocks as demonstrated by the only 37% tech exposure found in (QQQJ ).
- The actively managed (TMSL ) recently achieved an important operational milestone by reaching 3 years of live performance history.
VettaFi asked which investment style they expect to add exposure to heading into the second half of 2026. The survey revealed that a leading 39% of the respondents selected U.S. small- and mid-cap equities. This outpaced emerging markets (35%), U.S. large caps (32%) and developed international markets (30%). Respondents could select all that applied.
VettaFi Mid-Year Symposium: Investor Style Sentiment
| Investment Style Allocation Target (H2 2026) | Percentage of Advisor Respondents |
|---|---|
| U.S. Small/Mid Caps | 39.30% |
| Emerging Markets Equities | 35.30% |
| U.S. Large Caps | 32.00% |
| Developed International Equities | 30.00% |
Rethinking the Passive Core Outside the Russell 2000
While many people reflexively look to the +*iShares Russell 2000 ETF*+ (IWM) to capture smaller company exposure, alternative index-based architectures warrant a closer look. For instance, investors looking to capture growth without the top-heavy concentration of the Nasdaq-100 can look to the Invesco Nasdaq Next Gen 100 ETF (QQQJ ). Serving as a compelling complement to (QQQ ), QQQJ tracks the next 100 non-financial firms listed on the Nasdaq exchange and was highlighted during the VettaFi symposium.
QQQJ offers a more sector diversified approach to innovation as it catches companies in their mid-cap life cycle before they graduate to the mega-cap tier. The ETF’s information technology exposure was just 37%, leaving ample room for major weightings in healthcare (19%) and consumer discretionary (18%). QQQ recently had 67% of assets in the technology sector.
For advisors concerned about the historical lack of profitability in traditional small-cap benchmarks, the VictoryShares Small Cap Free Cash Flow ETF (SFLO ) offers a strong alternative. SFLO tracks a rules-based index designed to filter for companies exhibiting high free cash flow yields and strong growth. SFLO’s fundamental screen creates a heavily diversified sector mix led by technology (31%), energy (17%), and healthcare (16%). The index approach provides a layer of quality that strips out the distressed companies weighing down some market-cap-weighted small-cap indexes.
Navigating Smaller Caps via Fundamental Active Managers
The small- and mid-cap universe is also less covered by Wall Street analysts. This represents an opportunity for active managers to generate alpha. The Fidelity Fundamental Small-Mid Cap ETF (FFSM ) is a strong example and was also highlighted during the VettaFi symposium, The fundamental ETF utilizes a traditional active framework that packs the absolute best ideas from Fidelity’s smaller cap teams into a single portfolio. Management blends quantitative screening with bottom-up human oversight to target mispriced smaller businesses exhibiting robust secular growth drivers.
Similarly, the T. Rowe Price Small-Mid Cap ETF (TMSL ) leans heavily on its active management heritage. Having recently hit its three-year anniversary, TMSL focuses on companies across the small-to-mid-cap spectrum that possess strong management teams, healthy balance sheets, and capital allocation strategies built to withstand macroeconomic cycles.
If you missed the VettaFi Symposium last week, catch the replay
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VettaFi LLC (“VettaFi”) is the index provider for SFLO, for which it receives an index licensing fee. However, SFLO is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SFLO.
