Dump The Junk: Fundamentals Favor Large Cap Over Small Cap

Small-cap outperformance has been driven mostly by within-sector stock selection, not differences in sector weighting. With the small-cap earnings catch-up reversing and leverage rising, we would fade the low-quality small-cap rally. We still want cyclical and AI exposure, but through higher-quality large caps rather than highly levered small-cap Tech. We are also opening a small-cap Health Care trade as an idiosyncratic way to gain exposure to the M&A cycle.