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According to FactSet data, Russell 2000 companies generate 79.4% of revenue from the U.S. exposure, whereas 69.7% of the S&P 500’s revenue exposure comes from the U.S.

“Several fundamental factors have driven small cap alpha in 2018. First, the Russell 2000 Index constituents’ 20% international revenue exposure is much lower than large caps’ overseas sales. Being more domestic helps small caps in several ways,” said FTSE Russell Managing Director Alec Young. “Not only have they been less affected by geopolitical and trade fears, they’re also more leveraged to newly enacted lower corporate tax rates and reduced Federal regulation. In addition, with Q1 earnings season off to a strong start, it’s worth remembering that small caps have a higher earnings growth outlook than large caps. Wall Street’s consensus 12-month forward earnings expectations for the Russell 2000 Index currently stand at 26% versus only 11% for the large cap Russell 1000 Index.”

For more information on small-capitalization stocks, visit our small-cap category.