00:00So over that time frame, of course, you're beating your indexes.
00:03Then you take a look at the one year performance and you're beating the S&P 500 by a pretty
00:09healthy margin as well.
00:10So talk us through where you're picking and choosing your spots in that small mid cap range right now.
00:17Sure. Thanks so much for having me on again today.
00:20Recent years, as we know, has been driven extremely by narrow leadership in mega cap and AI tech.
00:27And in 2026, we've really been starting to see that broadening out.
00:31I think a previous guest noted that our benchmark is up about 20 percent year to date versus the large
00:38cap indices just below 10 percent.
00:41And so my goal today is to really talk about why investors should use SMIDs to continue to build genuine
00:48breadth in their portfolio.
00:49So as you mentioned, Eric, we do have a fair amount of exposure in semis and AI.
00:55But it's really those picks and shovels names that are being the beneficiaries of all the CapEx spend of the
01:01mega caps.
01:02But this is truly a diversified portfolio.
01:06Our highest overweights right now from a sector perspective are industrials leaning into aerospace and defense, financials, regional banks in
01:13particular, health care.
01:15We're overweight biotech.
01:16So we really want to offer our investors a very strong breadth of different areas.
01:22We're not just levered to the AI craze where if AI continues to work, we'll have a big win.
01:29We really are, as Eric mentioned, bottoms up fundamental stock picking to find the best ideas within the SMID universe.
01:36So we talk about how we're really entering the heart of earnings season.
01:40Alphabet is going to be reporting this week.
01:42That's going to set the tone for the hyperscalers for big tech overall.
01:45What does the earnings picture look like for small caps?
01:48Because less attention is paid to the fundamentals of small caps when the big caps are doing well.
01:52It's so true.
01:53And we focus on this excessively at T. Rowe Price.
01:57And small and mid caps are trading anywhere from a 20 to 35 percent discount to the large cap indices.
02:03And there's a reason for that.
02:04A lot of names have seen some multiple expansion.
02:07But for 10 quarters in a row, small and mid cap estimates went down.
02:12Every quarter they'd report and future numbers would come down.
02:16Finally, when fourth quarter earnings were reported in the first quarter of this year, we started to see that inflection.
02:21And so if you look at consensus through the rest of 2026 and into 2027,
02:27we are going to start to see a large resumption and a big earnings acceleration of small and mid caps,
02:33which should ultimately drive the stocks much higher.
02:37And importantly, because of the valuation discount, you're starting at a much, much lower base.
02:41So you're getting a big earnings acceleration.
02:45Hopefully, we will see some good numbers.
02:47We think there will be continued spend from Google and the hyperscalers.
02:51And we are trying to reflect that not only in some of the technology stocks,
02:55but in other parts of the portfolio that are also starting to benefit from this diversification away from tech, tech,
03:02tech all the time.
03:03Yeah.
03:03So your job is to outperform a small cap index.
03:07That's one thing.
03:08But then you've got to sell small caps.
03:10I have made this metaphor for many years now that small caps are like college basketball.
03:15The best high school players go right to the G League or they're one and done or they go right
03:19to the NBA like Kobe and LeBron.
03:22You know, these big companies, they either get bought up by the MAG-7, which has acquired 850 companies,
03:28or they wait till they're really big like SpaceX and go right in as a large.
03:31Thus, small caps doesn't have future stars anymore to give it that oomph.
03:36What do you say to that?
03:36We think we have found quite a few future stars.
03:40A lot of the tech names, actually, that just exited the Russell 2500, SanDisk and Sienna and Fabronet,
03:48some names that we identified really early on.
03:51We redeemed those out using the ETF mechanism and redeemed those gains.
03:58And so now we're finding new children.
04:00So I've covered SMID for the majority of my career.
04:02It's really hard to watch your children go to college or to watch one of your basketball players, you know,
04:07go to the NBA.
04:09And that's the beauty of our platform is we really believe that we continue to find these names, whether they're
04:15in biotech.
04:16We had a big biotech takeout stock, Krenetics, a few weeks ago, to your point, was bought out by Vertex.
04:21So we really believe that there's always names coming in.
04:25There's been a lot more IPO action.
04:27I think when I was here maybe just over a year ago, it was a pretty slow lull.
04:31And this year, I think we've had some small SMID cap IPOs almost every single week, a lot in industrials.
04:37And so SpaceX gets the big news, but we think we have a great portfolio full of names that will
04:45hopefully continue to outperform and serve our clients well.
04:48Right. It's an important point.
04:49It's not just, you know, the mega IPOs that are coming out of the pipeline.
04:53You also have some of those smaller names coming back as well.
04:56But when it comes to the idea of selling small caps, I feel like something we talk about on this
04:59show often is that even when you have the outperformance, it's hard to attract the eyeballs to small caps.
05:06Obviously, you know, your fund that we're talking about here, you're just over three years old.
05:09You have $2.7 billion of assets.
05:12So you're doing fine there.
05:14But overall, what do you make of that?
05:17Why is it hard to see these broad-based inflows into small caps more generally?
05:23I think in the ETF landscape, this is a truly active ETF.
05:27There aren't that many truly active ETFs.
05:30And because of the breadth of our platform, and we are benchmark aware,
05:34we know what is in the Russell 2500, but we're not benchmark-hugging.
05:38We're not trying to follow a factor.
05:40And we use the depth of our research platform to find ideas to put into T-Missile.
05:46So we have almost close to 80% active share in our ECF because we're truly stock-picking.
05:52And we have the platform that allows us to do that.
05:55So, yes, hopefully, our small caps grow into large caps, and we have to sell them and say goodbye,
06:02and then we can buy them in some of our large cap funds.
06:05And sometimes the names don't work out.
06:07I think as somebody that covered SMID caps for 20-plus years,
06:11you have to recognize that they're not all going to work.
06:14And you sell them, and you move on, and you reallocate that money into other areas.
06:18And I think Sam mentioned, which we talk about this all the time,
06:23small caps have underperformed large for almost two decades.
06:26And usually, though, when we start to see that inflection, which we've seen this year,
06:30that tends to be a multi-year run.
06:32And all these underlying fundamental things like the earnings growth, the valuation discount,
06:37the fact that a lot of SMID names are levered to U.S. domestic policy now,
06:42these should all be really important tailwinds for T-Missile specifically and our SMID portfolio.
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