Beyond the mega‑caps: A broader equity opportunity
As market leadership evolves, diversification across regions and styles may matter more.
After an extended period of market leadership concentrated in a small group of mega-cap stocks, equity markets may be entering a new phase. Market leadership historically shifts over time, and today’s valuations across market capitalizations, regions, and investment styles are presenting renewed opportunities. For investors heavily allocated to recent market leaders, broadening exposure to areas such as small-cap, international, and value equities may help position portfolios for the next cycle.
Earnings growth estimates supports a broadening of the equity markets
Over the last few years, broad market outperformance has been driven by significant earnings growth within the Mag 7. Projected estimates indicate market performance may be driven by a broader group of stocks.
Wide valuation gaps may create opportunities
Value has historically outperformed growth by a healthy margin when the valuation gap (P/E) is above 10x.
International and emerging markets opportunities
International equities are projected to deliver robust earnings growth over the next two years, with emerging markets leading the way.
Small-cap expectations outpace large-cap counterparts
Small-cap equities have been in an earnings recession for the last three years. However, estimates indicate potential earnings outperformance.
Featured funds
Royce Small-Cap Opportunity Fund - Investment Class
Small-cap value fund that uses an opportunistic approach to invest in companies are categorized into themes: Turnarounds, Unrecognized Asset Values, Undervalued Growth, and Interrupted Earnings. Small-cap stocks' market caps are less than the largest stock in the Russell 2000® Index. Identifies a catalyst for future earnings growth in the form of new management, more favorable business cycle, product innovation, and/or margin improvement.
- Asset Class
- Equity
- Total Net Assets
As of 07/31/2026 - $1.31 bn
- Inception Date
- 11/19/1996
- Dividend Frequency
- No
- NAV
As of 08/18/2026 - $20.53
Templeton Emerging Markets Equity Fund - Advisor Class
The fund seeks long-term capital appreciation by investing at least 80% of its net assets in securities of developing- or emerging market issuers.
- Asset Class
- Equity
- Total Net Assets
As of 07/31/2026 - $2.61 bn
- Inception Date
- 01/02/1997
- Dividend Frequency
- Annually, in October, if necessary, December
- NAV
As of 08/18/2026 - $34.28
Putnam Emerging Markets Equity Fund - Class Y
The fund seeks long-term capital appreciation. The fund seeks to capitalize on inefficiencies by targeting approximately 60 high-conviction names.
- Asset Class
- Equity
- Total Net Assets
As of 07/31/2026 - $805.43 mn
- Inception Date
- 09/29/2008
- Dividend Frequency
- Annually
- NAV
As of 08/18/2026 - $23.12
1. Sources: FactSet, MSCI, Russell, S&P as of December 31, 2025. Large-Cap Stocks = Russell 1000 Index, Large-Cap Value Stocks = Russell 1000 Value Index, Mid-Cap Stocks = Russell Midcap Index, Small-Cap Stocks = Russell 2000 Index, Emerging Markets Stocks = MSCI EM Index, International Stocks = MSCI EAFE.
2. Sources: FactSet, Russell as of December 31, 2025. Value = Russell 1000 Value Index, Growth = Russell 1000 Growth Index.
3. Sources: FactSet, MSCI as of December 31, 2025. Japanese Equities = MSCI Japan Index, European Equities = MSCI Europe Index, Emerging Markets Equities = MSCI Emerging Markets Index.
4. Sources: FactSet, Russell. As of December 31, 2025. Small-Cap Stocks = Russell 2000, Large-Cap Stocks = Russell 1000. Important data provider notices and terms available at www.franklintempletondatasources.com.
The S&P 500 Index features 500 leading US publicly traded companies, with a primary emphasis on market capitalization. Source: © S&P Dow Jones Indices LLC. All rights reserved.
The Magnificent Seven stocks are a group of high-performing and influential companies in the US stock market: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.
The S&P 493 is known as the S&P 500 Index excluding the seven technology stocks (Magnificent Seven).
The Russell 1000 Index measures the performance of the large-cap segment of the US equity universe. Source: FTSE.
The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe. Source: FTSE.
The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe. Source: FTSE.
The Russell Midcap Index measures the performance of the mid-cap segment of the US equity universe. Source: FTSE.
The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe. Source: FTSE.
The MSCI Emerging Markets Index is a market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets. Source: MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI.
The MSCI Japan Index is designed to measure the performance of the large- and mid-cap segments of the Japanese market. With 183 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Japan. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI.
The MSCI Europe Index represents large- and mid-cap companies across developed markets in Europe, covering approximately 85% of the free float-adjusted market capitalization in these regions. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI.
The MSCI EAFE Index is a free float-adjusted market capitalization-weighted index designed to measure developed market equity performance, excluding the US and Canada. Source: MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Equity securities are subject to price fluctuation and possible loss of principal. Large-capitalization companies may fall out of favor with investors based on market and economic conditions. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
IMPORTANT INFORMATION
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.
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