While the R2000’s Cost of Capital is at its highest level in over 15 years, it does not necessarily presage poor forward returns. The index’ equity risk premium is below average, but it is above its pre-GFC levels, arguing other factors like earnings growth and profitability will drive returns. The R2000’s cost of capital peaked at 7.5% in ’08 during the Global Financial Crisis and troughed at 3.2% in 2020 following the small-cap surge of the COVID lows. Since COVID, the cost of capital has risen mainly due to increasing yields from all-time lows.