Small-cap valuations remain attractive despite recent outperformance, sitting near 25-year lows relative to large caps. Nathan Moser, senior portfolio manager at Impax Asset Management, highlights the opportunity as stronger earnings growth materializes through the year. "There's still very attractive" relative value, he says.

The Impax Small Cap strategy focuses on high-quality core holdings with a risk-mitigated approach. Launched 18 years ago, it targets long-term capital appreciation by investing in innovative companies at reasonable prices through active management. "We invest in a select group of very high quality companies, and we make sure that we don't overpay for those companies," Moser explains.

After several false starts over the past decade, Moser believes the current small-cap outperformance is durable and will persist for several years. M&A activity is returning with "animal spirits" in the market, supported by easier access to capital and self-reinforcing deal momentum.

Key risks center on economic slowdown, though Moser anticipates a strong economy in 2026 and 2027. For advisors reassessing allocations, he recommends ensuring exposure to the asset class with a quality bias to avoid low-quality names.

Small caps play an important role in diversified portfolios, particularly with current valuations and catalysts in place.

Source: Video - Why High Quality Small Caps Still Matter in 2026