US smaller companies have lagged behind their larger counterparts in recent years, but things may soon be about to change. Historically, cycles of market leadership rarely extend beyond a decade, making today's valuations an attractive entry point for long-term investors.
One of the key advantages of smaller companies is their domestic focus. With roughly two-thirds of revenues tied to the US economy, these firms are well-positioned to benefit from the nation's strong labour market, slowing inflation, and manufacturing revival driven by reshoring initiatives.
"The US economy is so broad and diverse that we find interesting investment ideas in every sector," explains Matt Mahon, portfolio manager for the US Smaller Companies Equity Strategy at T. Rowe Price. "Investing in smaller companies involves the potential for more volatility than for larger companies. But over the past 100 years, they have shown the potential for outsized returns."
But investing in smaller companies carries risks, particularly around volatility. Diversification is key to minimise individual company risks and macroeconomic exposure – a disciplined approach helps capture upside potential while mitigating downside risks, offering a compelling formula for long-term investors.
Read the full article to explore the long-term potential of small cap US equities.
Brought to you by Investment Week in association with T.Rowe Price. By clicking "Click to Read More" you agree to the data protection statement below.
DATA PROTECTION STATEMENT: Your privacy policy – Please read carefully.
We set out below how and the basis under which we, Incisive Media*, will communicate with you. In our Privacy Policy we explain how we may use your data.
For subscriptions, events, sponsored content and resources, we will use the lawful basis of 'legitimate interests' and we will use the contact details supplied to us to market to you regarding your trial or subscription, reader research, events and other related products. You will always be offered the option to change your contact preferences. Where you request a whitepaper or content published by one of our third party partners or attend a sponsored event which Incisive Media hosts, we will identify the third party or sponsors to you at the time and then pass on your contact details to them. They will contact you directly and their use of your data will be governed by their own privacy policy. Events may attract additional sponsors after bookings have opened and after the date you have signed up to attend, but we will identify all sponsors to you by email before the event. Please note that if you are a sole trader or other partnership, you will not receive information regarding Incisive Media's other brands or from third parties until such time as we have your consent.
