Small-cap companies typically carry more debt relative to their earnings than large firms. Because of this, their performance is highly sensitive to the cost of borrowing:

: Lower rates reduce financing pressure on small businesses, directly boosting their bottom line. 3. Valuation Gaps

Buying when small-caps are trading at a deep discount (on a price-to-earnings or price-to-book basis) compared to large-caps can offer a "margin of safety" for long-term gains. 4. The 7-Year Commitment

When large-caps have dominated for a long period—as they have for over a decade—the can widen significantly.

Improving like rising GDP and falling unemployment often signal it is time for small-caps to outperform. 2. The Interest Rate Signal

The story of "when to buy small-cap funds" is one of timing economic shifts, embracing volatility, and looking ahead long-term. Small-cap funds, which invest in companies typically valued between $300 million and $2 billion, act as a barometer for domestic economic health. 1. The "Mid-Cycle" Sweet Spot