Small-cap investing in a shrinking market: risks and opportunities

The number of US public companies has declined dramatically over the past 25 years, reducing opportunities for small-cap investors while reshaping index composition. Increased M&A activity, declining IPO volumes, and rising regulatory burdens have led to a smaller, lower-quality small-cap landscape. More than a third of Russell 2500 companies now report negative earnings, reflecting heightened risks within the segment. Despite these challenges, historically low valuations, reshoring trends, and a pro-domestic business environment provide compelling opportunities for selective investors...