Small-cap companies typically carry more debt relative to their earnings than large firms. Because of this, their performance is highly sensitive to the cost of borrowing:
As the economy stabilizes and demand improves, smaller, more agile firms can see revenue and profit grow more sharply than their massive counterparts. when to buy small cap funds
Market cycles of outperformance for small-caps vs. large-caps last about on average. Small-cap companies typically carry more debt relative to
: Historically, small-caps have outperformed large-caps in the months following a Federal Reserve interest rate cut . large-caps last about on average
Buying when small-caps are trading at a deep discount (on a price-to-earnings or price-to-book basis) compared to large-caps can offer a "margin of safety" for long-term gains. 4. The 7-Year Commitment
: Lower rates reduce financing pressure on small businesses, directly boosting their bottom line. 3. Valuation Gaps