Active Small-Cap ETF Draws Flows Amid Historic Discount

Core Insights - T. Rowe Price's Small-Mid Cap ETF (TMSL) attracted $30.88 million in inflows, marking it as the second-largest inflow among the firm's ETFs [1] - U.S. small-caps are currently trading at a 25% discount to large-caps, excluding unprofitable firms, indicating a potential investment opportunity [1] - Goldman Sachs forecasts that small-caps are positioned for gains in 2026 due to cyclical strength, earnings recovery, and renewed capital market activity [1] Fund Performance - TMSL experienced a 5.7% decline over the past five days but still attracted inflows, suggesting investors see recent price weakness as a buying opportunity [1] - The ETF has posted a 1.9% loss over the past month and manages $1.60 billion in assets with a 0.55% expense ratio [1] Investment Strategy - The ETF focuses on companies with attractive valuations, improving cash flow, high return on capital, and strong balance sheets [1] - Goldman's report emphasizes the need for careful security selection in the current environment, highlighting a significant performance gap between the top and bottom stocks in the Russell 2000 Index [1] Economic Outlook - U.S. small-cap companies generate 80% of their revenue domestically, which may benefit from anticipated domestic growth as U.S. GDP is expected to accelerate in the first half of 2026 [1] - Key sectors for TMSL include industrials and business services (21.1%), financials (16.8%), and information technology (16.8%) [1]