Big Tech and the mega-caps dominate the conversation in markets these days, but the market’s tiniest stocks are also worth a look, according to a veteran investor.
Jim Stoeffel, a portfolio manager at Royce Investment Partners, an investment firm owned by Franklin Templeton that oversees roughly $13.6 billion in assets, says micro-cap stocks—those with a market capitalization of less than $300 million—are the market’s “best kept secret.” He maintains that though these smaller stocks are subject to volatility, investors shouldn’t ignore them.
“We feel confident saying that many investors don’t know that micro-caps have been leading the U.S. equity markets for more than a year now, dating back to the market low on April 8, 2025,” Stoeffel said in a post from the firm last month. “We’d also be willing to bet that a sizable number of investors have only a vague idea that the asset class exists in the first place.”
He flagged some data that points to the outperformance of the sector through the middle of this year.
The Russell Microcap rose 27.5% compared to 22.6% for the small-cap Russell 2000 Index, 10.3% for the large-cap Russell 1000 Index, and 2.0% for the mega-cap Russell Top 50 Index, Stoeffel wrote.
Small-caps have enjoyed a banner year so far as well, with the Russell 2000 up 18% compared to the 13% gain. But micro-caps have continued to operate mostly under the radar, despite their big streak of gains since the tariff meltdown of April 2025.
“Yet even in the context of recent market leadership and widespread positive performance, we are still finding attractive buying opportunities in nearly every corner of the micro-cap universe.”
In an interview, Stoeffel told Business Insider that the stocks can be volatile, which may keep some investors away, and that while investors should include micro-caps in their portfolios, it should be done with active management, due to some of the unique characteristics and volatility of these stocks.
“When things go wrong, they tend to go wrong pretty meaningfully. If things go right, they go right very meaningfully,” he said.
As for what specific sectors and stocks his team is bullish on, Stoeffel said he likes software and employment services.
While his team is bullish on AI, they also favor the software industry as well as employment services. In tech and AI, Stoeffel said his team’s approach to micro-caps favors the pick-and-shovel companies benefitting from the data center boom.
Stoeffel flagged DHI Group, 204% year to date, as a top pick among micro caps. DHI Group operates in two spaces that Stoeffel likes, offering exposure to both tech and employment services as the operator of a specialized career marketplace.
While slightly larger by market cap, he also named Ichor Holdings and Mistras Group as bullish picks in the sectors he’s watching. Both fall into the pick-and-shovel category.
Mistras provides protection services for large-scale infrastructure, while Ichor manufactures subsystems for semiconductor devices, catering to clients such as Applied Materials and Lam Research.
“All the AI related stocks have pulled back, but we think it’s become attractive again,” Stoeffel stated of Ichor.
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