FT Unhedged this morning has a good piece on small caps worth 5 mins — attaching.
Key takeaways for PMs:
1/ INDEX CONSTRUCTION MATTERS MORE THAN YOU THINK. Russell 2000 value +10.4% YTD vs S&P 600 value +8.3% vs MSCI small value +6.8% — same label, very different animals. Russell carries a wider market cap dispersion (median $820mn vs $2,088mn for S&P 600) and higher energy, lower tech. Know what you own.
2/ SMALL VALUE STILL CHEAP, BUT FEAR IS THE CONSTRAINT. Rob Arnott (Research Affiliates) flags small-cap value is "deep value" — the P/E premium of S&P 500 over S&P 600 peaked at 7.5x in Nov 2025, now compressing, but mean reversion is incomplete. Sentiment, not valuation, is the binding constraint.
3/ SMALL GROWTH OUTPERFORMANCE IS AN AI PROXY TRADE. Investors rotating from crowded Mag7 into small-cap AI adjacencies (data centre infra, chips, cooling, energy mgmt). It's a de-concentration play, not a pure growth bet.
--- BIOTECH ANGLE ---
This is directly relevant to how we think about our covered names. The "fear over fundamentals" dynamic Arnott describes maps perfectly onto European small-cap biotech: DBV Technologies, Abivax, Nanobiotix, Inventiva — all sitting in deep-value/high-catalyst territory with sentiment-depressed entry points. The BLA catalyst (DBV H1 2026), ECCO anti-fibrotic data (Abivax), and J&J-sponsored NANORAY-312 Phase 3 (Nanobiotix) are all binary re-rating events that the market is discounting on macro fear rather than clinical merit. For event-driven PMs with a 6-12m horizon, the risk/reward is asymmetric.
Happy to send individual fiches on any of the above.
Laurent