While Big Tech and mega-cap giants typically dominate the financial headlines, one veteran fund manager argues that the real opportunity lies in the smallest corners of the market. Jim Stoeffel, a portfolio manager at Royce Investment Partners, describes micro-cap stocks—companies with a market value under 300 million dollars—as the best kept secret in investing. According to Stoeffel, many traders aren’t even aware that this asset class exists, let alone that it has been quietly outpacing its larger siblings for over a year.
The numbers support his claim of hidden growth. Since hitting a low point in April 2025, micro-caps have shown impressive resilience and strength. Data indicates that the Russell Microcap index climbed 27.5 percent through the middle of the year, significantly beating out small-cap and large-cap indices, as well as the mega-cap heavyweights. Despite this rally, Stoeffel believes there are still plenty of attractive buying opportunities available across various sectors because these companies remain largely ignored by the broader public.
However, diving into micro-caps isn’t without risk. Stoeffel warns that these stocks are notoriously volatile; when they fail, they do so dramatically, but when they succeed, the gains can be massive. Because of this instability, he suggests that investors avoid a passive approach and instead rely on active management to navigate the turbulence. This targeted strategy allows managers to find high-potential gems while avoiding those likely to crash.
Currently, Stoeffel is particularly bullish on software and employment services. Within the artificial intelligence craze, his team avoids the obvious hype and focuses instead on pick and shovel plays—the essential infrastructure companies that power data centers and semiconductors. He pointed to firms like DHI Group as a standout example of where tech meets labor services, alongside others like Ichor Holdings and Mistras Group that provide critical technical subsystems and infrastructure protection.