Investors continue to broaden out their portfolios this year, seeking previously overlooked and undervalued industries and asset classes. Small-caps remain a coiled spring, lagging the broader market but with the potential for outperformance should conditions prove favorable. Investors concerned about timing small-cap potential but wanting to capture attractive valuations should consider the Neuberger Berman Small-Mid Cap ETF (NBSM ).
Despite a volatile first-half, marked by significant market drawdowns, large-cap equity benchmarks have managed to recover losses year-to-date. The impact of U.S. tariffs and the related volatility driven by ongoing changes to tariff policies created churn in 2025 markets. Sectors, industries, and strategies that offered diversification from large-cap tech concentrations proved popular in a challenged market environment. Small-caps, historic underperformers in the last few years, could be a coiled spring of outperformance if and when economic recovery or declining interest rates begin.
“Historically, small-cap stocks have performed best when the Fed is easing monetary policy and the economy is poised to begin rebounding,” Dave Sekera, chief U.S. market strategist at Morningstar, said in May. “That does not appear to be the case in the near term. So, while these stocks are undervalued, it may not be until later this year or early 2026 that small caps start to work.”
Don't Miss Out On SMIDcap Opportunities With NBSM
Advisors and investors seeking opportunity in small-caps would do well to consider the SMIDcap space. The inclusion of midcap companies can dampen volatility inherent to small-caps while still offering attractive valuations compared to large-cap peers. Additionally, active management provides a number of benefits within the asset class. Thoughtful, researched stock selection may help to avoid underperformers and harness those with strong outperformance potential.
NBSM is actively managed and invests in small- and midcap companies with elevated, sustainable growth potential. The fund managers use bottom-up analysis from the research team when evaluating companies. The team consists of 12 members averaging over 20 years of industry experience, including five senior analysts.
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 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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