Written by Michele Ward, Investment-Spezialistin at T. Rowe Price

My summer greetings come to you from Park City, Utah.  I recently drove three quarters of the way across the United States from our headquarters in Baltimore, Maryland to this historic mining town in the Wasatch Mountains.  Relatives of mine settled near here in the 1850s, and my family and I have returned in the past decades to enjoy the ski slopes in winter and hiking in summer. 

This was the first time I drove, and I’m so glad I did.  In my role as a Portfolio Specialist, I speak to investors about the many and varied small and mid-cap companies that make up such a vibrant part of the US economy and its equity markets.  The route across the country took me from one of the largest port cities on the East Coast through the industrial heartland, across the farming country of the Midwest to a vacation getaway on the edge of one of the technology hubs that support innovative new start-ups.  Join me on the journey as I think through the case for small and mid-cap US equities!

 Michele Ward von T. Rowe Price.

Uncertainty Regarding Global Trade

European settlers arrived in Baltimore in the early 1660s, and the Port of Baltimore was created in 1706.  Today’s port handles a wide variety of cargo but is a disproportionately large port of entry for automobile imports.  The recent escalation of tariffs creates uncertainty regarding global trade, affecting the future vibrancy of this port and the multinational companies that use it every day.  In contrast, small and mid-cap companies in the US tend to be more domestically focused.  While it is difficult to be wholly immune to the impacts of trade in our global community, smaller companies are less likely than their larger counterparts to shoulder the weights of whatever tariff regime is to come.

The old industrial Midwest is benefitting from the reshoring of manufacturing that began in the Covid era.  While the current administration in Washington is intent on accelerating this process, many companies began this process in 2020-2022.  The challenges of managing global supply chains during Covid prompted manufacturers of various stripes to build their next factory closer to home.  Automation of production is key to ensuring that such US based production is cost competitive, and there are many smaller companies in the US that produce key component parts for the factory of the future. 

Infrastructure is Aging

As I retraced the old Mormon Trail from Cedar Rapids Iowa through Nebraska and Wyoming, now known as Interstate 80, I encountered miles upon miles of roadworks. Infrastructure in the US is aging, and reinvestment in that infrastructure is critical to supporting this reshoring effort. Aggregates companies provide the literal underpinning to the country’s highways, while state of the art warehouse facilities owned by industrial REITs enable the right products to get to the right customers.

Hotspot For Start Ups

As I reached my vacation home in the foothills surrounding Salt Lake City, I could see myself literally sitting between the 19^th century and the 21^st century. Salt Lake City is one of a number of hubs of technology innovation. While the large cap companies that dominate today’s headlines in information technology are principally headquartered on the West Coast, smaller companies are cropping up in such smaller cities, fueling innovation.  The ultimate winners from AI, for example, may ultimately be some of the start up companies that dot the landscape in cities like Salt Lake. 

Salt Lake City. (Image: Pixabay)

Park City reminds me a bit of the smaller company landscape in the US.  Antique miners’ cottages and an old limestone schoolhouse stand cheek by jowl against the most modern of condominiums and stores.  In the same way, great small companies in the US may be 200 years old, or just launched IPOs.  The energy and creativity that bring crowds to the Sundance Film Festival each year evoke the innovation and creativity that we find in industries like biotechnology, software and consumer goods.  Like smaller companies, Park City has had good times and bad.  When the mines closed, it took a long time for a rebirth, and many people lost hope. Park City’s bad times make the current period of small cap underperformance look like a blip in comparison.  But I have confidence that, just as Park City reemerged stronger than ever, with new ways to generate wealth for those who took the risks to invest, so too will smaller companies in the US.