Companies with market caps of $4 billion or less represent more than 70% of U.S. stocks. Yet many investors consider small caps riskier than large- cap equities and remain underexposed to this asset class.

We believe small- cap stocks can offer investors a larger opportunity set than large caps. They have delivered attractive historical long-term returns and outperformed other major asset classes in times of low-but-rising interest rates, such as the current environment. Small caps tend to be more closely tied to the U.S. economy and may benefit from an improving economic outlook.

Investors should consider adding small- cap stocks as a core portfolio allocation.

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