As U.S. growth outlooks face increasing challenges this year, diversifying beyond growth-heavy, large-cap benchmarks could prove beneficial. SMIDcap stocks offer a number of opportunities for investors. The actively managed Neuberger Berman Small-Mid Cap ETF (NBSM ) delivers further diversification potential within the category.
The inflationary and economic impact of U.S. tariffs in the second half of 2025 creates a challenging environment for growth stocks. Given growth concentration in the major large-cap equity benchmarks, looking further afield this year may prove beneficial. SMIDcaps currently offer attractive valuations compared to large-cap peers. They also provide diversified sector exposures versus large-cap benchmarks. Whereas the major equity indexes are currently overweight information technology, the top sectors of the Russell 2500 were industrials ( 21.31%), financials (17.16%), and consumer discretionary (14.42%) as of April 30, 2025.
The category also tends to have greater leverage and dispersion overall. SMIDcap companies typically carry a greater debt ratio than their large-cap peers, with a higher percentage of underperformers. Investors must do their due diligence to best understand individual company risks, financial health, and outlooks. However, minimal analyst coverage in SMIDcaps compared to large-caps creates added hurdles, and greater market inefficiencies.
Harness the Benefits of Active Management When SMIDcap Investing
These inefficiencies and the need for greater individual stock research provides the perfect backdrop for active strategies to thrive. NBSM currently outperforms the Russell 2500 by over 75 basis points on a total returns basis as of May 19, 2025, according to Y-charts data.
NBSM is actively managed and invests in small- and midcap companies with elevated, sustainable growth potential. The fund managers use bottom-up analysis when evaluating companies. This analysis is constructed by a team of 12 members averaging over 20 years of industry experience, including five senior analysts.
See also: Neuberger Berman’s Reiner on Big Teams in Small-Caps
The strategy focuses on quality companies that generate reliable free cash flow and elevated profitability. The companies also have conservative balance sheets and business models that set them apart from peers.
NBSM’s active approach leads to differentiated sector weights from the Russell 2500, making it a notable addition to existing SMIDcap exposures. Top sectors for NBSM include industrials at 35.52%, information technology at 18.2%, and financials at 10.13% as of May 19, 2025. The strategy also seeks to mitigate the elevated volatility inherent to small- and midcap investing while reducing downside risk.
NBSM carries an expense ratio of 0.74%.
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