Are US Micro-Caps the Market’s Best Kept Secret?

US micro-caps may remain in the early stages of a prolonged leadership cycle because their recent outperformance is broad-based, valuations remain relatively low, and earnings fundamentals are improving.

• For the year to June 30, 2026, the Russell Microcap rose 27.5%, versus 22.6% for the Russell 2000, 10.3% for the Russell 1000, and 2.0% for the Russell Top 50.
• From the April 8, 2025 market low through August 14, 2026, the Russell Microcap gained 109.0%, ahead of the Russell 2000 at 77.2%, the Russell 1000 at 58.6%, and the Russell Top 50 at 54.0%.
• AI infrastructure supported smaller companies in semiconductors, data-center construction, and power; semiconductors and semiconductor equipment gained 183.2% in the first half of 2026 and contributed more than 400 basis points to the micro-cap index’s return.
• The rally was not confined to technology: all 11 sectors were positive from April 2025 through June 2026, while biotech gained 228.3% and banks returned 58.6%.
• At the end of June, micro-caps traded at 16.6 times earnings and 2.2 times book value, compared with 25.8 times and 5.3 times for the Russell 1000; their median EV/EBIT valuation was also close to a 25-year low relative to large-caps.

Takeaway: Investors should consider the breadth, valuation discount, and expected earnings growth supporting US micro-caps, while recognizing their higher volatility and the risks of relying on past performance.