Re-examine small-caps

Outlook 2025Re-examine small-caps

Small-cap equity performance has lagged that of large-caps over the past three years, driven primarily by market dynamics such as changing index composition and a macroeconomic environment that has favored large-caps. In 2025, many of the structural headwinds facing small-caps recently may abate, leading to a potential rally in the asset class.

While we suggest that investors maintain strategic exposure to US small-cap equities throughout market cycles, we believe the market environment in 2025 creates a compelling case to increase small-cap exposure, especially with an active mutual fund.

Two potential catalysts for small-caps in 2025

Interest rate cuts icon

Interest rate cuts

Small-cap equities tend to benefit from rate-cutting environments, mainly as a result of lower interest coverage ratios and a greater proportion of floating-rate debt. In the US Federal Reserve’s eight rate-cutting environments since 1979, small-caps have outperformed large-caps on average by more than 6 percentage points for the 12 months following the first rate cut of each period.

Improved earnings growth icon

Improved earnings growth

Fundamentals are an important driver of sustained performance for small-cap equities. Year-over-year earnings growth for the Russell 2000® Index is projected to remain greater than 20% through at least mid-2026. This could be the fundamental catalyst that helps small-caps close the relative performance gap.

The small-cap opportunity

As the market environment becomes more amenable to small-cap companies, analysts are projecting stronger earnings growth, suggesting a potential attractive entry point for investors.

Year-over-year earning growth rate (actual and estimated)

Small caps theme supporting chart

Source: LSEG I/B/E/S, as of November 15, 2024.

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IMPORTANT INFORMATION

Investing involves risk, including the possible loss of principal.

Diversification may not protect against market risk.

Carefully consider the Fund’s investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Fund’s prospectus or the summary prospectus, which may be obtained by visiting macquarie.com/mam/literature for mutual funds or calling 877 693-3546 Read the prospectus carefully before investing.

Investments in small- and/or mid cap companies may be more volatile than those of larger companies.

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe.

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value and is often used to represent performance of the US stock market.

Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company.

Past performance does not guarantee of future results.

All third-party marks cited are the property of their respective owners.

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