Small caps have more upside after big April, Bank of America says
Small cap investors saw huge gains in April, and Bank of America strategists see more upside coming. The Russell 2000 jumped more than 12% last month, its best monthly performance since November 2020. It even outperformed the large cap S & P 500 , which saw an advance of 10.4% in April. “Small caps have outperformed [year to date] and we expect them to continue to lead, driven by an EPS/manufacturing recovery,” wrote Bank of America analysts led by equity and quantitative strategist Jill Carey Hall in a Thursday report. Investors don’t have to stick with the small cap benchmark to capture those potential gains, however. “We continue to see opportunities for active management but also in owning key themes in small caps,” the strategists added. The bank called out a few exchange traded funds that go beyond the Russell 2000’s constituents – and that are in in specific industries that may juice returns. Enhancing returns Hall’s team highlighted the iShares US Small-Cap Equity Factor ETF (SMLF) as one way to play the theme. More than 8 out of 10 of the companies in the fund are profitable, compared to only about two-thirds of the Russell 2000, the bank found. The SMLF has five stars and a gold rating from Morningstar. The fund is up more than 11% this year and has an expense ratio of 0.15%. Stocks in the fund include nVent Electric , an artificial intelligence infrastructure play that’s up more than 65% in 2026, and Apple supplier Jabil , up 48% this year. The strategists also called out the Janus Henderson Small Cap Growth Alpha ETF (JSML) for investors who want to play companies where analysts are quickly raising their earnings estimates. “Estimate revisions have been an ‘all-weather’ factor,” Hall’s team wrote. The fund has the highest earnings revisions ratio of small-cap ETFs in Bank of America’s research coverage, the strategists added. JSML is up almost 14% this year, and has an expense ratio of 0.30%. Holdings in the portfolio include Bloom Energy , a data center power play that’s soared more than 230% this year. Data infrastructure stock Credo Technology is another big holding, up 35% in 2026. Finally, Bank of America highlighted a play for small-cap investors who want to look beyond the U.S. The Avantis International Small Cap Value ETF (AVDV) is up 13% year to date and has an expense ratio of 0.36%. The fund “has outperformed U.S. large growth since Covid at less expensive valuations and with a lower correlation to the market,” the strategists wrote. A sliver of exposure for diversification Just because the year has been kind to small caps doesn’t mean that you should go all-in on the asset class, but it doesn’t hurt to have a little bit of exposure to help diversify away from the large cap plays that could be taking up an outsized share of your portfolio. Gabriel Shahin, certified financial planner and founder of Falcon Wealth Planning in Irvine, Calif., said having a 5% to 10% allocation toward small caps could make sense. He noted, however, that investors must be discerning when they’re getting into these smaller companies, including watching their balance sheet and eyeing their revenue growth. This could make the case for an active approach toward small caps, rather than buying an index. “I want people to know that small cap is an inefficient asset class,” he said. “Small caps are different and expensive for a reason.” —CNBC’s Michael Bloom contributed reporting.
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