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The stars (and stripes) align: The overlooked appeal of US SMID

5 March 2024 |
Active ESG
In our latest video insight, Charlotte Daughtrey, Equity Investment Specialist, makes the case for US SMID (small and mid-sized) stocks, which can sometimes get overlooked amid the hype around the so-called ‘Magnificent Seven’ stocks, but can represent a particularly exciting area of the market.

Fast reading

  • While about one third of the S&P 500 is accounted for by the ‘Magnificent Seven’, the Federated Hermes US SMID Equity team have 2500 stocks to choose from (from the Russell 2500 Index) and no single group that dominates. US SMID companies – with a market capitalisation of between US$1bn to US$15bn – typically have structurally higher growth than their large cap peers1.
  • US SMID companies form the backbone of the US economy, and tailwinds such as onshoring should provide a real boost to US SMID companies over the next five to ten years. Revenues for US SMID companies are typically much more domestically focused than their large cap peers (typically around 70-80%). Whereas for many S&P 500 companies the revenue split between domestic and international is around 50:50).
  • A lot of attractive valuations that can be found in the US SMID space. US equities are often viewed as expensive, but in terms of valuations, only certain sections of the market could be described as pricey. On a ten-year basis, US large caps are trading above their long-term average, whereas US SMID companies are trading below their ten-year average. Typically, US SMID companies trade at a 10% premium to their large cap peers – but are currently trading at a 30% discount2.

For further insights on US SMID Equity please click here

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