Janus Henderson says small caps resilience signals shift

Binaya Dahal

Journalist

27 May 2026

Janus Henderson’s Nick Sheridan says the resilience shown by smaller companies amid geopolitical uncertainty indicate a gradual broadening of equity market leadership beyond a small group of dominant large-cap stocks.

The remark comes as small caps holds firm amid prolonged conflict in Iran, which has resulted in energy market volatility due to shipping disruption through the Strait of Hormuz, and created a fear of broader inflationary spillovers and weaker risk appetite across markets.

Sheridan, portfolio manager at the $493 billion asset manager, calls the shift a gradual reassessment of highly concentrated equity positioning after a decade in which returns were under the heavy influence of small cohort of US mega-cap technology names.

Over that period, companies often referred to as the “Magnificent 7”, including Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia and Tesla, led a disproportionate share of index performance, supported by passive inflows, strong earnings growth, and a preference for liquidity and scale in a higher-rate environment.

But Sheridan said the focus has now shifted from owning what has worked to reassessing where future returns may come from.

“It has been driven by a subtle change in behaviour, with investors showing greater sensitivity to valuation, a more questioning approach to crowded trades, and growing awareness of how concentrated portfolios have become,” he said.

“Artificial intelligence remains a powerful structural theme, yet investors are starting to look beyond the most obvious beneficiaries, to smaller companies exposed to adjacent areas of growth.”

Sheridan also pointed to a structural advantage within the small-cap universe, particularly its diversity across regions and its closer alignment with domestic economic cycles rather than globalised earnings streams.

“They tend to be more agile, more entrepreneurial, and more focused on niche areas of growth rather than operating at global scale,” he said.

Furthermore, Sheridan added another defining feature of the segment is they remain significantly under-owned and under-researched compared with large caps. “A combination of less scrutiny and more varied outcomes creates opportunity for active investors taking a selective approach.”

While acknowledging higher volatility risks in smaller companies, the asset manager noted the long-term case remained compelling for investors willing to tolerate cyclical swings in exchange for exposure to earlier-stage growth businesses.

“In a market long dominated by a narrow group of large-cap stocks, they provide diversification, exposure to innovation, and access to domestic growth trends across regions,” Sheridan said.

“The macro environment remains uncertain. However, for investors focused on fundamentals, the breadth of opportunities within global smaller companies remains significant.”