Small Cap Strength in 2025: Positioning for Durable Long-Term Returns

Market Backdrop

U.S. equity markets delivered strong returns in 2025, supported by resilient economic growth, moderating inflation, steady consumer demand, and improving corporate earnings expectations. Investor sentiment strengthened as fears of a sharp slowdown receded and expectations for policy normalization became more balanced.

Recent years have been defined by pronounced large-cap leadership. A small group of mega-cap companies now represents more than one-third of the S&P 500 Index, increasing concentration risk within broad market exposures. At the same time, valuation disparities have widened meaningfully: large-cap U.S. equities have traded at price-to-earnings multiples above 30x, compared with roughly 16x for small-cap equities.¹

This divergence has renewed discussion around the role of small caps within diversified portfolios, particularly as market leadership begins to broaden.

Performance Overview

The Ironwood Small Cap Core Strategy finished 2025 with strong results, returning 22.50% gross of fees (21.28% net), outperforming the Russell 2000 Index. In the fourth quarter alone, the strategy advanced 4.77% gross (4.50% net) compared with the Index’s 2.19% return.

While near-term performance can fluctuate, long-term durability remains central to our evaluation. Since inception (January 1, 1999), the Strategy has generated an average annual return of 11.91% gross (10.80% net) versus 8.22% for the Russell 2000 Index.

Historically, small-cap equities have delivered a long-run return premium relative to large caps. Academic research and long-term empirical data suggest that smaller companies have outperformed larger peers by approximately 1-1.5 percentage points annually over extended periods.¹ Periods of underperformance; such as the recent three-year stretch dominated by mega-cap gains; are not unprecedented, nor are they permanent features of market structure.

Investment Philosophy: Quality and Discipline

Not all small-cap exposure is created equal. Recent analysis highlights that underperformance within the small-cap universe has often been concentrated in low-profitability growth companies, businesses with high valuations and weak underlying earnings power.¹

The Ironwood Small Cap Core Strategy is built on a bottom-up process focused on identifying high “Ironwood-Quality” companies, businesses with durable competitive advantages, strong balance sheets, capable management teams, and the ability to adapt over long holding periods. We emphasize fundamental profitability, valuation discipline, and long-term compounding potential.

We view volatility as a natural feature of small-cap investing, not as a definition We view volatility as a natural feature of small-cap investing, not as a definition of risk. Market overreactions can create opportunities to acquire high-quality companies at attractive valuations.

The portfolio typically holds 60–80 positions, maintains a 10% single-position limit, and as of December 31, 2025, the The portfolio typically holds 60–80 positions, maintains a 10% single-position limit, and as of December 31, 2025, the top ten holdings represented approximately 37% of portfolio weight, reflecting conviction balanced with diversification.

One of the enduring mechanisms behind small-cap outperformance is “migration,” the process by which successful small companies grow into mid- and large-cap classifications. Over long horizons, this migration has contributed meaningfully to the size premium. Importantly, recent data suggests that the frequency of companies moving up the capitalization spectrum remains consistent with long-term historical patterns.¹

For long-term investors, diversified exposure to smaller companies provides participation in the next generation of market leaders. Many of today’s largest corporations began as small-cap firms.

Outlook

The backdrop for small-cap equities appears constructive, though not without uncertainty. Relative valuations, improving earnings breadth, and reduced index concentration may continue to support the asset class.

Rather than relying on macro forecasts, our approach remaiRather than relying on macro forecasts, our approach remains centered on bottom-up research, valuation discipline, and active risk management.

Our objective is not simply to participate in rallies, but to build portfolios designed to endure across cycles and deliver durable long-term returns.

Download the Full Q4 2025 Strategy Profile

For complete performance details, portfolio characteristics, and market commentary, we invite you to review the full Small Cap Core Strategy Profile.

📥 Download the Q4 2025 Strategy Profile (PDF)

Contact Us

To learn more about Ironwood Investment Management, LLC’s Small Cap Core strategy, investment philosophy, or the PSN Top Guns methodology, we invite you to connect with our team.

 📞 Phone: 617-757-7600
📧 Email: info@ironwoodfunds.com
🌐 Website: www.ironwoodinvestmentmanagement.com

Schedule a Consultation:
https://scheduler.zoom.us/brian–collins

Footnotes

¹ Wes Crill, Financial Times, “Why small caps still belong in portfolios,” February 10, 2026.

Footnotes to Performance

Ironwood Investment Management®, LLC (Ironwood) is an independently managed investment advisory firm providing investment advisory services to institutional clients, mutual funds and high-net-worth clients. The firm is a registered investment adviser with the Securities and Exchange Commission. SEC Registration does not imply a certain level of skill or training. Accounts in the Small Cap Core composite include separately managed, fully discretionary, fee-paying portfolios.  Portfolios are invested in undervalued securities, the  majority of which will have market capitalizations under $2.5 billion at cost, including securities with growth and/or value characteristics.  Securities are considered undervalued when management believes the current share price does not  accurately reflect the long-term economic value of the underlying company. Ironwood Investment Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Ironwood Investment Management, LLC has been independently verified for the periods January 1, 1999 through December 31, 2021. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis.  The Small Cap Core composite has had a performance examination for the periods July 1, 2002 to December 31, 2021.  The verification and performance examination reports are available upon request. GIPS® is a registered trademark of CFA Institute.  CFA  Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. The creation date of the composite: July 2002. Performance inception date of the composite: January 1, 1999. Prior to July 2002, portfolios were included in the composite when at least 75% of the portfolio was invested in equity securities and when at least 75% of the portfolio was invested according to the investment style of the composite. Subsequent to July, 2002, portfolios are included in the composite after the first full month of being fully invested.  Returns are presented gross and net of management fees and include the reinvestment of all income. Net  returns are calculated based on the highest fee of 1.00%. Investment management fees are 1.00% on the first $25 million, 0.90% on the next $25 million, 0.80% on the next $50 million, and 0.75% over $100 million on an annual basis and a client’s return will be reduced by these and   other related expenses. The actual fee charged to an individual  portfolio may vary by size and type of portfolio and may be negotiated. Actual investment advisory fees incurred by  clients may vary. The Russell 2000 Index consists of the 2000 smallest stocks in the Russell 3000 Index that represents approximately 8% of the U.S. equity market capitalization.  The indices have been reconstituted annually since 1989. Ironwood returns and Index performance reflect reinvested interest income and dividends, in U.S. dollars. A list of composite descriptions and a list of limited distribution pooled fund descriptions are available upon request. Past performance is not indicative of future results. Policies for valuing investments, calculating performance and preparing GIPS Reports are available upon request. Prior to May 2006, the Firm was known as Ironwood Capital Management, LLC.

John Grady

Research & Operations Associate

As Research & Operations Associate, John assists the equity research effort in support of the portfolio managers and works closely with the operations department. Prior to joining the Ironwood team in 2023, John earned his BA in Psychology, from the University of Denver. While studying, John developed several business plans for small businesses in the Denver area for a capstone project for his business minor. Prior to joining Ironwood, John was developing his research skills through an apprenticeship by regularly meeting with management teams, attending investor conferences, and developing investment theses.

Cameron Marshall

Trading & Research Associate

As a Trading & Research Associate, Cameron is responsible for investment portfolio trading and operations as well as conducting equity research in support of the portfolio managers. Prior to joining the Ironwood team in 2022, Cameron earned his BA in Economics, with a minor in Mandarin, from the University of New Hampshire. While studying, Cam held several internships working with investment teams across asset classes in both private and public markets. An active member of his community, Cam has contributed his time and energy to charities including Best Buddies International, Be Positive for CHaD Kids, and Positive Tracks.

Alyssa Wade

Director of Client Relationships

Alyssa Wade is the Director of Client Relationships and assists in the Marketing Department at Ironwood Investment Management, LLC®. Prior to joining Ironwood, Alyssa worked at Boston Technologies and Regan Communications Group. She holds a Bachelor of Arts in Communication with a minor in Education from the University of Massachusetts, Amherst.

Regina Wiedenski

Co-Portfolio Manager
Value Investment Partners (VIP) Strategies

Regina Wiedenski is Co-Portfolio Manager for the VIP strategies at Ironwood Investment Management, LLC®. Ms. Wiedenski has an MS in Management with a concentration in finance from the Sloan School at M.I.T. and a BS from M.I.T. Prior to joining Ironwood to manage VIP portfolios, she was a Portfolio Manager at J.L. Kaplan Associates. Previously she was an equity analyst at Advest, Inc. and had spent nine years as an analyst at Adams, Harkness & Hill covering healthcare, specialty chemical, instrumentation and publishing companies. She began her career as a financial analyst at Morgan Stanley.

Paul Weisman

Co-Portfolio Manager
Value Investment Partners (VIP) Strategies

Paul Weisman is Co-Portfolio Manager for the Value Investment Partners (VIP) strategies at Ironwood Investment Management, LLC®. Mr. Weisman has an MA in Industrial Organization (Applied Microeconomics) from Boston University and a BA from Haverford College. Prior to joining Ironwood as the head of the V.I.P. team in 2009, Mr. Weisman was Chief Investment Officer at J.L. Kaplan Associates which he joined in 1986. From 1983 to 1986 he was an investment analyst at Delphi Management.

Ravi Jain, Ph.D., CFA

Partner

Ravi Jain, Ph.D., CFA is a Partner at Ironwood Investment Management, LLC®. Dr. Jain has a Ph.D. in Finance from the University of Missouri Columbia (doctoral thesis on corporate spinoffs), a Master of Finance and Bachelor of Commerce from the University of Delhi. He is also a Chartered Financial Analyst® (CFA). Dr. Jain is an Associate Professor of Finance at the University of Massachusetts Lowell where his research focuses on capital markets and corporate finance.

Warren Isabelle

Portfolio Manager

Warren Isabelle, CFA is a Portfolio Manager at Ironwood Investment Management, LLC®. Prior to forming Ironwood Investment Management, LLC® in 1997, Warren was the Head of Domestic Equities at Pioneer Management Company and the Portfolio Manager of more than $3 billion in small cap assets including the Pioneer Capital Growth Fund (later renamed Pioneer Mid-Cap Value Fund), Pioneer Small Company Fund and several institutional portfolios. Warren has received national attention for his research efforts and results.  He has also appeared in feature articles in Barron’s, Business Week, Forbes, Fortune, Money and The Wall Street Journal and has appeared on “Wall Street Week with Louis Rukeyser.” Prior to joining Pioneer, Warren was an Analyst at The Hartford Insurance Company.  He earned a BS in Chemistry from Lowell Technological Institute, an MS in Polymer Science and Engineering from the University of Massachusetts, and an MBA in Finance from the Wharton School of the University of Pennsylvania.

Paul Anderson

Executive Managing Partner

Paul Anderson, CFA is Executive Managing Partner of and leads investor relations, business development and management activities for Ironwood and is a member of the management committee.  Paul joined Ironwood in December 2020 after 12 years at Natixis Investment Managers where he developed and led the U.S. institutional distribution group at Natixis Distributors L.P. Over the course of his 30 years in the industry, Paul has held roles in investment research, sales and management.  Paul holds a Bachelor of Arts in Economics from the University of New Hampshire, and an MBA from Vanderbilt University.  He is a member of the Committee on Investor Responsibility at UNH advising the UNH Foundation on sustainable investment practices.

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Shantelle Reidy

Executive Managing Partner
Chief Financial Officer
Chief Compliance Officer

Shantelle Reidy is Executive Managing Partner and the Chief Financial Officer and Chief Compliance Officer for Ironwood Investment Management, LLC®. Shantelle is a member of the management committee and has served Ironwood in various capacities since joining the firm in 1998, including as Executive Director of Trading and Operations from 2001 to 2014. Prior to joining Ironwood, Shantelle was an Investor Relations Analyst at Talbots, Inc. where she conducted research for the company and managed the firm’s communication with investment analysts. Shantelle holds a Bachelor of Arts degree in Economics and Political Science from Boston University and a Master of Business Administration in Marketing and Finance from the Boston University School of Management.

Donald Collins, CFA

Executive Managing Partner
Portfolio Manager

Donald Collins, CFA is an Executive Managing Partner and Portfolio Manager at Ironwood Investment Management, LLC® and is a member of the management committee. Prior to joining Ironwood in 1998, Don was a portfolio manager with Boston Advisors where he managed portfolios for institutions and high net worth clients.  During his tenure at Boston Advisors, Don participated in the management of the Advest Advantage family of mutual funds and managed the Advantage Special Fund.  Don began his career as a Manager for Burgess & Leith.  He earned his BA in Geology from Boston University and studied at the Boston University School of Business.  In addition, Don is the Director and Investment Committee Chairman for the Abelard Foundation, Chairman and Commissioner of Trust Funds for the Town of Lincoln, MA and Director and Chief Financial Officer at Igan Biosciences.

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