Core Viewpoint - The Invesco SmallCap Momentum ETF (XSMO) has demonstrated strong performance, returning 17.06% over the past year and 52.65% over five years, significantly outperforming its benchmarks, indicating the effectiveness of momentum strategies in small-cap investing [1]. Group 1: Performance Metrics - XSMO returned 17.06% over the past year, surpassing the iShares Russell 2000 ETF (IWM) at 16.19% and the SPDR Portfolio S&P 600 Small Cap ETF (SPSM) at 13.02% [1]. - Over five years, XSMO achieved a gain of 52.65%, compared to SPSM's 34.46%, highlighting the persistence of momentum factor performance [1]. Group 2: Portfolio Composition - XSMO holds a significant concentration in Industrials at 29.2%, Financials at 16%, and Consumer Discretionary at 15.6%, which are sectors that typically perform well during economic expansions [1]. - The fund applies a momentum screen to the S&P SmallCap 600 universe, focusing on approximately 120 stocks with strong price and earnings trends [1]. Group 3: Investment Strategy - XSMO is designed as a tactical small-cap growth allocation for investors who believe that recent winners will continue to outperform [1]. - The fund's annual expense ratio is 0.36%, which is reasonable for a factor-based strategy, and it has $2.2 billion in assets, indicating strong institutional interest and liquidity [1]. Group 4: Risks and Considerations - The momentum strategy can lead to increased volatility, with potential for swift reversals in performance [1]. - The fund's near-30% weighting in Industrials presents a sector concentration risk compared to broader small-cap indexes [1].

Core Viewpoint - The iShares Russell 2000 ETF is outperforming the S&P 500 in 2026, challenging the traditional investment narrative that favors large-cap stocks [3][4]. Performance Comparison - The iShares Russell 2000 ETF is up 6.8% year-to-date in 2026, while the S&P 500 has declined by 0.1% [3][8]. - Over the past year, the iShares ETF has gained 17.6%, surpassing the S&P 500's 14.9% increase [3][8]. Small-Cap Dynamics - The iShares Russell 2000 ETF benefits from small-cap stocks, which have shown resilience and growth potential despite previous struggles [4]. - Small-cap stocks faced significant challenges during the pandemic, leading to underperformance compared to larger companies [5][6]. Economic Context - Small caps have higher debt loads, approximately 1.5 times that of large caps, making them more vulnerable to economic downturns [5]. - Inflation and rising interest rates have further pressured small businesses, limiting their growth potential [6]. Historical Performance - From 2020 to 2024, the Russell 2000 Index returned only 2.2% annually, in stark contrast to the S&P 500's 15.1% average return [7]. - By late 2024, small caps were trading at a 20% valuation discount compared to large caps [7]. Recent Developments - The Federal Reserve's rate cuts in 2025 to a range of 3.50%-3.75% have reduced borrowing costs for small-cap companies [8]. - Russell 2000 earnings grew by 12% in late 2025, marking the first time they outpaced large caps since 2021 [8].

Core Viewpoint - Morgan Stanley indicates a broadening bull market, shifting focus from mega-cap tech to under-owned small-cap sectors, with a strong conviction in small-cap stocks for the upcoming year [1][2]. Economic Outlook - The U.S. GDP is projected to grow at 2.6% for 2026, supporting the transition towards small-cap stocks as a high-conviction strategy [2][8]. - A "run it hot" economy is expected to sustain equity prices, particularly benefiting small-cap stocks due to lower interest rates and increased demand from GDP growth [3][4]. Small-Cap Performance - The iShares Russell 2000 ETF has risen 17% since its November low, outperforming the S&P 500, which only gained 1.9% [6]. - The S&P Small Cap Index is experiencing its best earnings revisions breadth since August (+7%) and strongest EPS growth since 2022 (+10%) [7]. Market Dynamics - The removal of Chairman Jerome Powell and the nomination of Kevin Warsh, who may adopt a more dovish monetary policy, have contributed to a rally in small-cap stocks [5]. - Market breadth is improving, indicating positive momentum across various sectors, which is historically favorable for the stock market [8]. Earnings Momentum - Fourth-quarter S&P 500 earnings growth is projected at 13%, with 59% of companies reporting results, indicating a potential for a fifth consecutive quarter of double-digit earnings growth [8]. Valuation Trends - Mega-cap technology's revenue growth expectations are at a multi-decade high of 18%, yet forward P/E ratios have decreased to 27, placing them in the 12th percentile since early 2003 [8].

Core Viewpoint - The S&P 500 index has shown strong performance in January 2026, climbing 1.4%, but two specific ETFs have significantly outperformed this benchmark, indicating a potential trend favoring smaller companies [1][3][6]. Performance of ETFs - The Invesco S&P 500 Equal Weight ETF increased by 3.4% in January, while the iShares Russell 2000 ETF rose by 5.5%, showcasing their ability to outperform the S&P 500 index [3][4]. - Both ETFs provide a means to invest more heavily in smaller stocks, with the Equal Weight ETF distributing investments equally among S&P 500 components and the Russell 2000 ETF tracking the smallest 2000 companies by market cap [4]. Market Dynamics - Over the past three years, smaller companies have lagged behind large-cap stocks, particularly those in the AI sector, which have driven the S&P 500 to record levels of concentration, with the top 10 stocks making up 41% of the index's value [5]. - There is a potential reversal of this trend, suggesting that small-cap stocks and the equal-weight index may continue to outperform larger companies [6]. Economic Outlook - Macroeconomic factors are expected to favor smaller companies, particularly as the impact of last year's tariffs imposed by President Trump begins to wane. These tariffs had disproportionately affected smaller firms that lack the negotiating power of larger corporations [7][8]. - As the market adjusts to the absence of these tariffs, smaller companies are anticipated to experience improved earnings growth expectations [8].

Core Viewpoint - Small-cap stocks are poised for a potential comeback in 2026, driven by favorable economic conditions, attractive valuations, and expected earnings growth, particularly following recent Fed rate cuts [1][7][14]. Group 1: Historical Performance and Valuation - Historically, small caps have outperformed in the months following Fed rate cuts, a trend observed since 1990 [1]. - The Russell 2000 is currently trading at 18 times earnings, while the S&P 600 trades at 15.9 times, compared to the S&P 500 at 27 times, indicating that small caps are at their cheapest relative to large caps since 1999 [3]. - Small caps have not outperformed the S&P 500 on a full-year basis since 2020, but their current valuations suggest a potential for significant outperformance [14]. Group 2: Economic Factors and Earnings Growth - Small companies benefit more quickly from Fed rate cuts due to their reliance on short-term bank loans, while large companies take longer to refinance [2]. - Bank of America forecasts that small-cap earnings will grow by 17% in 2026, compared to 14% for large caps, indicating a stronger profit growth outlook for small companies [7]. - The combination of rate cuts, accelerating earnings growth, and potential M&A activity creates a favorable environment for small caps [14]. Group 3: Investment Strategies and ETFs - Two ETFs provide distinct approaches to small-cap exposure: the Russell 2000 Index for broad-based exposure and the iShares Core S&P Small-Cap ETF (IJR) for a quality-focused basket [5][12]. - The Russell 2000 Index includes around 2,000 companies with market capitalizations typically ranging from $300 million to $2 billion, offering higher volatility due to the inclusion of speculative names [9]. - The IJR ETF applies stricter listing standards, filtering out riskier speculative names, which may result in lower volatility and more consistent returns [13]. Group 4: Market Dynamics and Opportunities - The dominance of a few megacap tech stocks has overshadowed small-cap performance, creating a compelling opportunity for investors to rotate into undervalued small-cap stocks [4][6]. - Analysts suggest that 2026 could be the best year for stock picking, particularly for small-cap stocks, as they offer better value for profit growth compared to megacaps [8]. - Small caps provide meaningful diversification away from the concentration in megacap stocks, making them an attractive option for investors seeking to balance their portfolios [15].

Core Insights - The Vanguard Mega Cap Growth ETF (MGK) and iShares Russell 2000 ETF (IWM) differ significantly in cost structure and investment focus, with MGK being more cost-effective and concentrated in technology, while IWM offers broader small-cap exposure and higher yield [2][3]. Cost & Size Comparison - MGK has an expense ratio of 0.07%, while IWM's is 0.19%, making MGK the more affordable option [4]. - As of January 22, 2026, MGK's one-year return is 14.4%, compared to IWM's 18.2% [4]. - MGK has a dividend yield of 0.4%, whereas IWM offers a higher yield of 1.0% [4]. - MGK has assets under management (AUM) of $32.5 billion, while IWM has $73.7 billion [4]. Performance & Risk Comparison - Over the past five years, MGK experienced a maximum drawdown of -36.01%, while IWM's was -31.91% [6]. - An investment of $1,000 in MGK would have grown to $1,929 over five years, compared to $1,256 for IWM [6]. Portfolio Composition - IWM holds 1,951 stocks, with sector weights led by healthcare (19%), financial services (16%), and technology (16%), maintaining low single-company risk [7]. - MGK is heavily concentrated in technology, with 70% of its assets in this sector, and top holdings like NVIDIA, Apple, and Microsoft making up over a third of its assets [8]. - IWM provides long-standing access to the small-cap segment with a fund age of 25.7 years [7]. Investment Implications - The choice between MGK and IWM depends on the desired exposure to the stock market, with MGK focusing on mega-cap tech growth and IWM offering a diversified small-cap approach [11].

Core Insights - Investing in small-cap stocks often involves a trade-off between quality and growth potential, with many small-cap indexes containing unprofitable companies [1] Group 1: Small-Cap ETFs - The WisdomTree US Smallcap Quality Dividend Growth Fund (DGRS) is a notable small-cap ETF that emphasizes dividends and quality, with a total asset value of $353.2 million as of its debut in July 2013 [2] - DGRS has shown extended out-performance over the last six years compared to "junk" small-caps, particularly benefiting from dividend-paying smaller companies with quality traits [3][4] - The Russell 2000 Index, a benchmark for U.S. small-cap equity performance, had approximately 28% of its weight in companies with negative earnings over the prior 12 months as of September 30, 2025 [5] Group 2: Investment Strategy and Market Trends - DGRS's focus on profitability provides a strategy for investors to mitigate volatility, which is not commonly found in basic small-cap funds [4] - DGRS also offers value at a time when many small-caps are experiencing high valuations, making it an attractive option for investors [6] - A shift in investor tolerance for money-losing companies could favor quality ETFs like DGRS, especially if traditional small-cap funds struggle [7] - Historically, companies with steady earnings and dividends have lagged behind speculative firms, indicating a reversal of trends seen post-global financial crisis [8]

Core Insights - The ETF market experienced nearly $1.5 trillion in net inflows in 2025, marking a record year for the industry [1] Small-Cap ETFs - Small-cap ETFs faced net redemptions in 2025, with approximately $7 billion in outflows, significantly underperforming large-cap counterparts [2] - The S&P 600 rose about 6%, lagging the S&P 500 by over 1,000 basis points, although the gap narrowed to 100 basis points in Q4 [2][3] - Major outflows were concentrated in the iShares Russell 2000 ETF (IWM) and iShares Core S&P Small-Cap ETF (IJR) [3] Thematic ETFs and AI - Thematic ETFs, particularly those focused on artificial intelligence, saw around $16 billion in inflows, representing over half of all thematic inflows [4] - The iShares AI Innovation and Tech Active ETF (BAI) attracted nearly $8 billion [4] - Other notable thematic plays included the Range Nuclear Renaissance Index ETF (NUKZ), which increased by 55%, and the ROBO Global Robotics & Automation Index ETF (ROBO), which gained 22% in 2025 [4] High Yield ETFs - High yield ETFs, such as the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the iShares Broad USD High Yield Corporate Bond ETF (USHY), returned close to 9% in 2025, outperforming the Aggregate Bond Index [5] - Despite tight credit spreads, 38% of advisors still find high yield corporate bonds attractive [5] Industry Developments - Over 30 firms, including Dimensional Fund Advisors, BlackRock, and JPMorgan Chase & Co., are expected to launch ETF share classes of mutual funds by the end of Q1 [6] - Goldman Sachs is integrating Innovator ETFs following a $2 billion acquisition, which is anticipated to create synergies by combining Innovator's products with Goldman's distribution network [7] New ETF Strategies - Cullen Roche launched three new ETFs in November 2025, targeting five-, 10-, and 20-year time horizons using an asset-liability matching framework to address sequence of returns risk [8]

Core Insights - The S&P 500 is facing a concentration issue, with the top seven stocks representing about one-third of the index, leading to significant exposure to a few mega-cap technology companies [1] - The Invesco S&P 100 Equal Weight ETF (EQWL) offers an alternative by equally weighting the top 100 companies, limiting even large firms like Apple and Microsoft to approximately 1% of the portfolio [1] Performance Comparison - Since its inception in December 2006, EQWL has returned 271% over the past decade, outperforming the market-cap weighted SPDR S&P 500 ETF Trust (SPY) by 37 percentage points [2] - In the past year, EQWL gained 18.84%, compared to SPY's 17.34%, and has increased by 1.07% in early 2026, while SPY rose only 0.85% [2] Market Dynamics - Equal-weight strategies perform well when market leadership expands beyond mega-cap stocks, with early 2026 indicators suggesting a potential rotation, as evidenced by the iShares Russell 2000 ETF gaining 2.67% year-to-date compared to a modest 0.60% gain for the tech-heavy Invesco QQQ Trust [4] - Historical data indicates that equal-weight versions of the S&P 500 have outperformed market-cap weighted versions by an average of 1.05% annually over multi-decade periods [5] Rebalancing Strategy - EQWL employs a quarterly rebalancing strategy that systematically trims positions exceeding 1% and adds to those below 1%, facilitating a buy-low, sell-high mechanism [6] - The current sector allocation of EQWL includes Financials at 17.3%, Information Technology at 16.3%, and Healthcare at 15.2%, contrasting with market-cap weighted indices where Technology often exceeds 30% [7] Alternative Investment Options - The Invesco S&P 500 Equal Weight ETF (RSP) is another option that applies the same equal-weight methodology across all 500 companies, providing greater diversification into mid-cap names, although it has underperformed EQWL recently with a 13% gain over the past year [8] Future Outlook - Over the next 12 months, it is essential to monitor market breadth expansion and EQWL's quarterly rebalancing activity to assess the sustainability of its historical performance advantage [9]

Group 1: ETF Industry Overview - The ETF industry experienced record net inflows of $1.49 trillion in 2025, setting a high benchmark for 2026 [1] - Specific market segments are being monitored for potential investment opportunities in 2026 [1] Group 2: Small-Cap ETFs - The S&P 600 Index rose only 6% in 2025, significantly underperforming the S&P 500 by over 1,000 basis points, although small-caps showed improvement in Q4 [2] - Small-cap ETFs faced net redemptions in 2025, with the iShares Russell 2000 ETF (IWM) and iShares Core S&P Small-Cap ETF (IJR) experiencing outflows of $4.6 billion and $2.7 billion respectively [3] - There is interest in whether the late December demand for small-cap ETFs will continue into 2026 [3] Group 3: AI and Thematic ETFs - AI-focused ETFs saw significant inflows, with the iShares A.I. Innovation and Tech Active ETF (BAI) attracting $7.6 billion in 2025, and the Dan Ives Wedbush AI Revolution (IVES) nearing $1 billion in assets shortly after its June launch [4] - The Range Nuclear Renaissance Index ETF (NUKZ) outperformed AI-themed funds with a 55% increase in 2025, driven by rising demand for nuclear energy as AI infrastructure expands [5] - The ROBO Global Robotics and Automation Index ETF (ROBO) gained 22% in 2025, with expectations for continued interest in robotics [5] Group 4: High Yield ETFs - Fixed income ETFs saw substantial net inflows of $439 billion in 2025, with U.S.-focused high yield ETFs performing strongly, such as the iShares Broad USD High Yield Corporate Bond ETF (USHY) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG), which rose 8.8% and 8.6% respectively [6] - High yield credit spreads ended 2025 at historically tight levels, yet 38% of advisors still view high yield corporate bonds as attractive [7] - The USHY ETF gathered $6.1 billion in 2025, although demand slowed in the latter half of the year, while HYG attracted $1.5 billion of its total $4.8 billion in December alone [7]