Investor’s high hopes for US small-cap stocks after Donald Trump’s re-election as US president were initially disappointed. The belief had been that stronger economic growth and a re-orientation of demand towards domestic producers thanks to import tariffs would boost earnings of small capitalisation companies. More recently, those expectations look like they are being fulfilled. Since the market lows in early April after the initial ‘Liberation Day’ sell-off, the Russell 2000 small-cap index has outperformed the Russell 1000 Value index, and also European equities. The tech-heavy NASDAQ 100 is still the best-performing major index, but non-tech parts of the broad S&P 500, proxied by the Russell Value 1000 index, are doing less well. Europe faces the challenges of higher-than-expected tariffs on exports to the US and a strong euro. We believe the Russell 2000 index allows investors to tap into a positive US growth story without increasing their exposure to the mega-tech parts of the market.
