Core Viewpoint - The article discusses the historical performance of large-cap versus small-cap stocks, emphasizing that while large-cap stocks, particularly the "Magnificent 7," have dominated returns in the past decade, this dominance may not be permanent and could present an opportunity for small-cap investments [1][2][12]. Historical Performance - Over the last decade, the S&P 500 gained nearly 300%, with the Magnificent 7 stocks gaining 2585%, while small-cap stocks only gained 134% [1]. - The dominance of large-cap stocks is highlighted by their contribution of about one-third of the total gains of the S&P 500 [1]. Behavioral Bias and Asset Allocation - Investors have shown a tendency towards home country bias, favoring large-cap stocks due to their media coverage and perceived glamour [3]. - Since 2015, the average allocation to small-cap stocks in mutual funds and ETFs has decreased from 12% to 8%, indicating a potential over-reliance on large-cap stocks [2]. Importance of Market Cap vs. Style - The article explores whether it is more important for investors to focus on market cap or investment style, revealing that consistently choosing the correct market cap has historically yielded better performance than style selection [12]. - A study from January 1979 to August 2025 shows that large-cap stocks gained 12.3% per year compared to 11% for small-cap stocks, with a tracking error of 10% [8]. Valuation Trends - A decade ago, small-cap stocks traded at a PE multiple of 27x earnings compared to 19x for large-cap stocks; this valuation has since flipped, with small stocks now at 19x and large stocks at 27x [14]. - Small-cap earnings have grown by 9.5% per year, while large-cap earnings have grown by 8%, suggesting that small caps may now be undervalued relative to large caps [14]. Conclusion and Recommendations - The article suggests that investors may be under-allocated to small-cap stocks and over-exposed to expensive large-cap stocks, recommending a reconsideration of asset allocation strategies before potential market shifts occur [14].

Core Insights - Investors may overlook growth-oriented, profitable companies generating free cash flow (FCF) due to home country bias, but can benefit from international exposure through the VictoryShares International Free Cash Flow Growth ETF (GRIN) [1] Group 1: ETF Overview - GRIN tracks the Victory International Free Cash Flow Growth Index, targeting high-growth, international large-cap companies with potential for compounding FCF generation over time [2] - The Index uses FCF as a forward-looking measure, filtering companies based on FCF trends, FCF to return on invested capital, and growth prospects [2] Group 2: Importance of FCF - FCF is a key metric for assessing sustainable growth companies, indicating their ability to reinvest, offer dividends, or buy back stock, all contributing to shareholder value [3] - GRIN's indexed approach focuses on international companies exhibiting these characteristics, helping diversify portfolios concentrated in U.S. equities [3] Group 3: Notable Holdings - Rolls-Royce Holdings, a British aerospace and defense company, is a top holding in GRIN with a 3.88% allocation, potentially benefiting from increased military spending in the EU [4] - Siemens Energy, a German company, is experiencing record orders due to power demands from AI applications, crucial for Europe's power grid [5] - Siemens is also a leading wind power company, contrasting with the U.S. political agenda, highlighting missed opportunities for investors with a home country bias [6] - Sea Limited, based in Singapore, has seen a nearly 70% increase in value for the year as of 8/31/2025, capitalizing on e-commerce strength in Southeast Asia [7] Group 4: Diversification Strategies - For global diversification, investors can pair GRIN with other VictoryShares ETFs, such as the value-oriented VictoryShares Free Cash Flow ETF (VFLO), which focuses on high-quality, large-cap U.S. stocks [8] - The VictoryShares Free Cash Flow Growth ETF (GFLW) provides exposure to U.S. companies with high FCF profitability and growth potential [9]