Weak small caps and strong large caps –again… January turned out to be a very strong month for large caps.
The broad Stockholm Stock Exchange (OMXSPI-GI) rose by 2.1% (large-cap index +5%), while the global equity index (Dow Jones Global Index) gained +3.1%. Just like throughout last year, Swedish small caps once again lagged behind:the small-cap index (Carnegie Small Cap Return Index Sweden) declined by -4.2%.

Small caps increasingly neglected as large caps keep marching on –parallels to “boring stocks” vs. IT stocks during the dot-com bubble
Small caps have continued to be pushed aside while large-cap stocks have kept marching higher. During last year, the theme was clear: small-cap stocks performed weakly while large caps were strong, and the outperformance of the large-cap index versus the small-cap index amounted to 13% –a record as far as we have been able to determine. January further reinforced the same trend.

Over longer periods, however, small caps have historically performed clearly better than large caps, partly due to greater long-term growth potential and partly because large caps are often valued more highly from the outset. As small companies grow and mature, their valuation multiples also tend to expand, further strengthening returns.
In today’s uncertain global environment, investors naturally gravitate toward perceived safe havens –large caps –while reducing exposure to more “uncertain” small caps. This reinforces the narrative of large caps as safe and small caps as risky, creating a feedback loop that can persist for a long time.
But eventually gravity takes over. When valuations become stretched and growth opportunities limited, sentiment can shift quickly, often without a clear bottom.

The opposite is also true: once small caps begin to move higher, interest can return rapidly and create a positive spiral. We therefore see parallels to the dot-com bubble, where today’s large caps resemble the IT stocks of that era, while today’s small caps resemble the “boring” old-economy stocks. When sentiment turnswe do not know –but we are confident in which category we favor over the coming 3–5 years.

Please find attached our full report, which includes comments on our holdings.

Disclaimer
Risk Information. Historical returns are no guarantee of future returns. The money invested in the funds may both increase and decrease in value, and it is not certain that you will get back the entire invested capital. If you would like more information about the fund, please see the fund’s factsheet at kavaljer.se/en/.

This publication is addressed to clients and other stakeholders of Kavaljer AB (Kavaljer). The information is based on Kavaljer’s own assessments at the time of publication as well as on other sources. However, Kavaljer cannot guarantee that the information from these sources is correct, and the assessments are based on factors that may prove to be inaccurate. Anyone reading the information should be aware that it does not constitute an offer to buy or sell financial instruments or an invitation to engage in such transactions. The information is based on data known to Kavaljer at the time it was published. Assessments and conclusions presented may be subject to change, and such changes may occur without Kavaljer distributing updated information. Kavaljer is not responsible for any loss or other damage (direct or indirect) related to the use of this publication, to investment decisions, or otherwise, nor for any inaccuracies in the publication arising from incorrect or incomplete information from third parties.

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Kavaljer AB
Visiting Address: Cylindervägen 12, 9 tr
Box 1221, 131 28 Nacka Strand, Sweden
Phone: +46 8 684 393 00
Email: info@kavaljer.se

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Kavaljer Quality Focus January 2026 (ENG)

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