Small Caps: Unprofitables Lead, Active Managers Lag, But Can it Last?

Marquette Associates

Research

6 Pages

Marquette Associates explains why small cap leadership can look exciting while quietly raising portfolio risk. The core point is style drift: early bull markets often reward lower quality and higher beta exposures that many active managers avoid. The Russell 2000 rose nearly 42% off the market bottom through October 31, which is great headline fuel, but it may not reflect durable fundamentals.

Date published: December 2025

Source: FactSet as of November 14, 2025
Source: Bloomberg, Glenmede as of September 30, 2025 

Key Takeaways

Low quality leadership: Early rallies can be driven by narratives and risk appetite, not earnings resilience.
Active headwinds: Quality and profitability tilts can lag when markets prize speculation and momentum.
Mean reversion risk: Leadership can rotate quickly once financing conditions tighten and fundamentals regain relevance.

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