Micro-Caps Challenge Mega-Caps for 2025 Market Leadership — Evening Brief – 10.03.25
For much of 2025, mega-capitalization names have looked untouchable, but recently micro-caps are not just making noise—they’re closing the performance gap. The iShares S&P 100 ETF (OEF), composed of mega-cap stocks, remains up roughly 15.8% year to date. But the iShares Micro-Cap ETF (IWC) has surged into contention after its summer rebound, trading at a net asset value around $149 per share and holding market assets of approximately $980 million to $1 billion.
The Russell Microcap Index (tracked by IWC) generally includes companies with market caps between $50 million and $300 million, with a median firm somewhere around $200–$250 million and a typical weighted average a bit higher. Meanwhile, the S&P 100 (which roughly corresponds with OEF) holds the very largest U.S. firms—many valued in the hundreds of billions. Its median constituent market cap is around $186 billion, and the average (weighted) over $400 billion, with the smallest in that index still being very large by general market standards.
The fact that micro-caps have broken out lately despite their much smaller size suggests investors are willing to take on higher idiosyncratic and liquidity risk in exchange for growth potential and value upside. The shift began in late spring, with IWC overtaking small-cap peers (IJR) by early June. By mid-September, micro-caps briefly outperformed mega-caps on a year-to-date basis before easing slightly, underscoring the growing competitiveness of this “David vs. Goliath” dynamic as markets enter the final quarter.
From a market-structure perspective, this divergence highlights the importance of dissecting cap tiers beyond the traditional large-, mid-, and small-cap buckets. The absence of a parallel move in small caps suggests that micro-caps may be benefiting from more idiosyncratic drivers, such as renewed retail participation, tactical flows into higher-beta assets, or M&A speculation at the bottom of the market.
For allocators, the implications are twofold. First, micro-cap strength offers diversification potential in a market still heavily concentrated in a handful of mega-cap names driving index performance. Second, the volatility inherent in micro-caps means timing and liquidity risk must be carefully managed. If the trend continues, however, 2025 may mark a rare year when the smallest firms rival the largest in shaping equity market returns.