The Case for an Active Approach to Small-Cap Investing

Core Insights - Small-cap investing is gaining interest as a way to refresh portfolios amid market uncertainty, providing exposure to undervalued companies and mitigating concentration risk [1][3] - An active management approach to small-caps can enhance performance and identify firms best positioned for growth [4] Small-Cap Market Outlook - Small-cap firms are expected to have a stronger end to 2025 and a potentially rewarding start to 2026, aided by lower borrowing costs from recent rate cuts [2] - U.S. investors face concentration risk in megacap tech stocks, making small firms an attractive alternative with potential upside despite inflation and economic slowdown [3] Active Management Benefits - Active management can leverage fundamental research to identify small-cap firms that are likely to outperform in uncertain market conditions [4] Investment Options - The T. Rowe Price Small-Mid Cap ETF (TMSL) is highlighted as a viable investment option, charging a 55 basis point fee and focusing on growth or value characteristics through a bottom-up approach [5] - TMSL has achieved a year-to-date return of 9.1%, outperforming its category average of 6.9% and FactSet Segment average of 6% [5]