The widening representation of large U.S. stocks in large-cap benchmarks has reduced the benchmarks’ diversification benefit. Investors may want to diversify and seek outperformance by allocating to mid- and small-caps.
Following one of the most challenging years for equities in more than a decade, stocks have rebounded sharply in 2023 as investors have celebrated better-than-expected corporate earnings, resilient economic data, and decelerating inflation. In contrast to more cautious sentiment earlier in 2023, fears of a possible recession have been pushed out as investors have become more confident in the labor market’s durability and the economy’s ability to withstand higher interest rates.
The equities rally has been unevenly distributed in 2023.
While all major equity indexes have risen this year, their returns have differed depending on market cap and style. Mega-cap technology stocks have been the resounding market leaders as the buzz around artificial intelligence (AI) has helped the Nasdaq 100 Index post its strongest first half in 40 years. On the other end of the spectrum, the Russell 2000® Index, which has a notable allocation to floundering small-cap regional banks, has underperformed the tech-heavy mega-cap Nasdaq 100 Index by its largest margin on record over the same period.
You can now read the full whitepaper at the link below
