Small/Mid-Cap Valuations: Small caps re-rating vs. large for the first time since 2022

Research evidence excerpt

Small/Mid-Cap Valuations: Small caps re-rating vs. large for the first time since 2022

mall cap relative

6returns have grown less sensitive to Fed expectations vs. several years ago (no longer

Small vs Large Health Care

underperforming in “hawkish” weeks; Exhibit 47). Offsets boosting earnings include a

pick-up in buybacks (see: The surprising new place to get cash return note), higher oil 5 Avg.

(where small caps have more exposure to higher oil beneficiaries than sectors hurt by

higher oil) and the manufacturing recovery: sectors with the biggest upward revisions for

3the median stock have been Energy/Industrials (oil/mfg. beneficiaries) and Financials.

Value vs. Growth: still cheap in small, now neutral in mid 2

The relative multiple of Russell 2000 Value vs. Growth is still cheap vs. history on the

majority of metrics we track (by an average of 11%). We continue to favor Small Cap

Value, which has been the best-performing size/style box YTD (though it has lagged 0

Growth since April). Meanwhile in mid caps – where Value has continued to outperform 84 88 92 96 00 04 08 12 16 20 24

Growth and Growth has de-rated – relative valuations of the two styles now look neutral Source: FactSet, BofA US Equity & QuantStrategy

vs. history on average across the metrics we track. BofA GLOBAL RESEARCH

Health Care: best relative value in over a decade

The most-improved sector in our small cap sector ranks over the past year has been

Health Care – which went from ranking worst to #3. Health Care trades at its lowest

relative multiple vs. the index since 2013, and also finally looks compelling vs. large caps,

where it trades at its lowest relative multiple since 2012 (margin chart) but is more

innovative and is poised to benefit from continued M&A (see SMID Health Care note).