The R2000 ended its seventh consecutive “up” monthly streak by falling -0.6% in December but posted its third straight “up” quarter, rising 2.2% in 4Q25, while underperforming large-caps by 46 bps. For the full year, small-caps rose 12.8%, their third straight positive return year, though lagged large-caps by 510 bps. 2025 marks a fifth consecutive year of small- vs. large-cap underperformance, tying their longest streak of the five years ending 1998. Small-caps have never lagged for six straight years. Longer-term, small-caps are currently enduring their longest underperformance cycle in history extending over 14 years. To say small-caps are due for an extended outperformance run is an understatement. And there are reasons to believe the tide may be turning with the R2000 outperforming the S&P 500 by over 370 bps since the post-Liberation Day Apr 8th low.
Large-cap excesses persist.
Quality lagged badly in 2025.
Health Care accounted for over a third of the R2000’s ’25 return.