Thoughts on where Growth Opportunities Exist in 2026

February 19, 2026

In recent years, there has been a notable concentration of investments in large United States stocks by both retail and institutional investors. This trend, while historically lucrative, has led to an imbalance in many portfolios, which are often underweight in smaller U.S. companies and large overseas equities. As we look to the future, there are compelling reasons to consider reallocating investments toward these neglected areas, where growth opportunities and favorable valuations offer significant potential.

Large U.S. equities have long been favored by investors due to their stability, robust performance, and the overall strength of the U.S. economy. Many of the tech giants like the MAG 7 have driven substantial growth, leading the charge in market capitalization. This focus, however, has resulted in a saturated market where everyone owns the same stocks, the stocks are often overpriced, making it harder to achieve substantial returns.

Opportunities in Smaller & Medium Sized U.S. Equities

Smaller U.S. equities represent an underexplored frontier ripe with potential. These stocks, often found in the Russell 2000 Index or Russell Midcap Index, provide a dynamic and diverse range of investment opportunities across various sectors.

Smaller companies are typically more agile, allowing them to adapt quickly to market changes and capitalize on new trends. They often focus on niche markets or innovative technologies that can lead to explosive growth. This quarter, we are seeing earnings growth from the small cap index double the growth rate of the S & P 500 index.

Many of these stocks are currently undervalued, providing a lower entry point for investors. This undervaluation is partly due to the overshadowing presence of large-cap stocks and can translate into higher returns as these companies gain visibility and market share. Large and Mega Cap stocks represent over 80% of the dollars invested in the US market. This means a lot of the smaller and medium sized companies are getting little to no attention from Wall Street firms and investors. This under the radar position creates opportunities for investors willing to do the homework (us).

 Small and medium sized companies don’t always act like their larger peers. For example, through February 18^th of 2026, the S & P 500 was up 0.5% and the Nasdaq was down 1.8% while small-cap index was up over 11%. The goal of adding any additional strategies is to enhance overall portfolio returns in periods of stagnant performance from other areas. This diversification is valuable in trying to deliver consistent and smooth portfolio returns.

The Case for Large Overseas Equities

In addition to smaller U.S. equities, large overseas equities present an attractive investment opportunity. Despite being often overlooked in the past few years, these equities offer several advantages in today’s environment. The share of U.S. stocks versus international stocks in the major global index is 54% U.S. and 46% International. While we don’t ever anticipate getting to 46% internationally in a portfolio for our clients, there are many investors that have nearly zero percent allocated to non-U.S. companies and that is a mistake for many reasons.

(Data Obtained from MSCI All Country World Index ETF Fact Sheet as of February 18^th)

https://www.blackrock.com/us/individual/products/239600/ishares-msci-acwi-etf

Investing in international markets provides exposure to different economic cycles, currencies, and geopolitical landscapes. This diversification historically has reduced portfolio risk and enhanced returns.

Many overseas markets are experiencing rapid economic growth. Countries like South Korea, Mexico, and Brazil have burgeoning middle classes and increasing consumer demand, driving corporate profits and equity growth.

Similar to smaller U.S. equities, many large overseas equities are undervalued. The global economic slowdown and geopolitical tensions have kept prices low, presenting a buying opportunity for those willing to venture beyond domestic markets. The U.S. has outperformed the international markets in six of the last seven years but in 2025 and so far again in 2026, we are seeing a return to international outperformance.

Given these opportunities, investors should consider revising their portfolio strategies to include a more significant allocation to smaller U.S. equities and large overseas equities. We have been revising many of our clients’ portfolios in accordance with the data we have shown here and will continue to do so over the course of this year.

We will continue to assess the current allocation of investments in large U.S. equities versus smaller U.S. and overseas equities as well as identify imbalances and areas for potential reallocation. During this process, we are also trying to minimize the tax consequences of making any type of reallocation.  Investors also must make sure that they do not let the desire to avoid taxes restrict their ability to grow their capital. Many investors miss opportunities to make additional dollars because they don’t want to pay nickels, dimes, and quarters of additional tax.

We will continue to conduct thorough research on potential investment candidates in smaller U.S. and overseas markets. We are always on the lookout for companies and countries with solid fundamentals, innovative products, and strong growth prospects.

As the Chinese philosopher Confucius once said, “A journey of a thousand miles begins with a single step.” The process of reallocating investments takes time and is often conducted gradually to avoid market timing risks. By looking to make moves over quarters and years and not days, we seek to mitigate the tax hit as well as reduce you from some of the market volatility. It doesn’t need to be unnecessarily rushed to be completed but it needs to start on the path.

Conclusion

The concentration of investments in large U.S. equities has overshadowed the potential which exists in smaller U.S. and large overseas equities. By shifting focus and diversifying portfolios, we can tap into undervalued opportunities that offer substantial growth and returns. As the global economic landscape evolves, these underweight asset classes offer promising avenues for investment, making them worthy of addition in the coming months and quarters.