Key facts
- Micro-cap stocks, defined as those with market capitalizations below $300 million, are considered the market's "best kept secret" by Jim Stoeffel, a portfolio manager at Royce Investment Partners.
- Stoeffel stated that micro-caps have outperformed broader U.S. equity markets for over a year, dating back to April 8, 2025.
- The Russell Microcap index saw a 27.5% gain, surpassing the Russell 2000's 22.6% rise and the Russell 1000's 10.3% increase.
- Active management is recommended for investing in micro-caps due to their inherent volatility.
- Stoeffel's team favors software and employment services, with a particular interest in companies supporting the AI and data center boom.
- DHI Group, Ichor Holdings, and Mistras Group were cited as specific stock picks within these favored sectors.
A veteran fund manager has identified micro-cap stocks as the stock market's "best-kept secret," suggesting they are overlooked despite recent outperformance. Jim Stoeffel, a portfolio manager at Royce Investment Partners, which manages approximately $13.6 billion in assets, stated that these smaller companies, with market capitalizations under $300 million, have been leading the U.S. equity markets for over a year.
Stoeffel pointed to data indicating that the Russell Microcap index had risen 27.5% by mid-year, outperforming the small-cap Russell 2000 Index (22.6%), the large-cap Russell 1000 Index (10.3%), and the mega-cap Russell Top 50 Index (2.0%). He acknowledged that micro-cap stocks can be volatile, advising investors to approach them with active management.
Despite the volatility, Stoeffel's team is finding attractive opportunities and is bullish on specific sectors, including software and employment services. They are also favoring companies that benefit from the AI and data center boom, often referred to as "pick-and-shovel" plays. DHI Group, a specialized career marketplace operator, was highlighted as a top pick, with Ichor Holdings, a manufacturer of subsystems for semiconductor devices, and Mistras Group, which provides services for large-scale infrastructure, also noted as attractive investments.