Research
Patience Powered by Fundamental Research
Active small-cap managers experienced performance headwinds since Liberation Day. Historically, how have small-cap core, growth, and value managers performed following similar challenging periods?
Extreme small-cap active underperformance has historically been followed by recovery.
Small-cap active managers are coming off one of the worst 9-month relative performance periods in the past 25 years.
History shows that after similar drawdowns:
- Alpha has typically turned positive within 6-12 months
- The strongest payoffs have come over 3 years, particularly in Small Core and Small Value
Periods of pain have often set the stage for opportunity.
For disciplined, long-term investors, mean reversion has mattered.
Better Times Tend to Follow Small Active Underperformance
As of December 31, 2025
Source: Jefferies Research Services; FTSE Russell; Lipper Analytical Services; FactSet as of 12/31/2025. Subsequent alpha is calculated following the worst nine-month relative return periods for each group of small cap managers: core, growth, and value.
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The Russell 2000® Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 Growth® Index measures the performance of the small cap companies located in the United States that also exhibit a growth probability. The Russell 2000 Value® Index measures the performance of the small cap companies located in the United States that also exhibit a value probability. The Russell 1000 Index is a subset of the Russell 3000® Index. It includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The volatility (beta) of the portfolios may be greater or less than the benchmarks. It is not possible to invest directly in these indices.
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