Durable and diverse drivers for small caps

Small-cap value equities are entering a broadening recovery supported by improving manufacturing, structurally higher rates, AI infrastructure spending, favorable U.S. energy costs and a bottoming in life-science tools.

• Financials represent 24.4% of the Russell 2000 Value Index versus 12.0% of the S&P 500, and higher rates should support net interest margins while favoring profitable, cash-generative companies over unprofitable growth stocks.
• The U.S. Manufacturing PMI has moved back above 50 after more than three years of contraction, a potential catalyst for domestically focused small caps in industrials, building products, auto parts and consumer manufacturing.
• Microsoft, Amazon, Google and Meta increased combined capital expenditure from roughly $150 billion in 2023 to more than $400 billion in 2025, with estimates of $700–800 billion by 2027, creating demand for smaller suppliers of steel, copper, HVAC, generators and electrical infrastructure.
• The widening gap between Asian LNG prices and U.S. Henry Hub prices supports U.S. LNG-related businesses and gives domestic manufacturers a cost advantage over European and Asian competitors.
• Life-science tools book-to-bill ratios have recovered above 1.0x after falling below that level through much of 2024 and 2025, while industry growth is expected to return toward its long-run annual pace of roughly 5.5% in 2026 and 2027.

Takeaway: Boston Partners sees a durable, diversified rotation toward small-cap value, but warns that the described tailwinds may not persist and that higher volatility, lower liquidity and economic sensitivity make the opportunity suitable only as a considered portfolio allocation.