The Russell index has been outperforming since last fall, but its performance has been characterized by high volatility.

Since 2022, expectations of Federal Reserve interest rate hikes or a less dovish monetary policy have consistently hindered the performance of small-cap stocks.

In the small-cap space, investors are becoming more comfortable with biotech stocks, which are often considered low-quality due to a lack of current earnings.

Economic fundamentals supporting small-cap stocks are strong, with re-accelerating jobs growth and the ISM index remaining above 50 for several consecutive months.

Investors believe the recent sell-off in semiconductor stocks is a short-term correction, while the long-term outlook for the sector remains positive.

European investors, particularly in London and Zurich, are actively seeking to diversify their portfolios beyond semiconductor and AI-themed stocks.