Big tech is quietly funding the best trade of 2026

For most of the past two years, owning US equities has meant owning a short list of very large technology companies. The returns were real, but they came from very few stocks, which left the market placing an enormous bet on a very small number of outcomes.

In 2026 that has started to change, and it looks like more than a simple rotation. The S&P Small Cap 600 has risen more than 20 per cent so far this year, roughly 11 percentage points ahead of the S&P 500, and is on track for one of its best years in more than two decades. The headline number is not the story. The shape of the rally is.

Breadth is the signal

This is a rally with almost no exceptions. Small caps have posted double digit gains in ten of the eleven GICS sectors this year, and they have beaten their large-cap equivalent in all eleven. Technology and energy are out in front, but the pattern runs all the way down the list, through health care, industrials, real estate, staples, materials and financials.

That breadth matters for what it rules out. When a rally sits in one theme or one corner of the market, a single story explains it and a single change of mind can undo it. A rally spread across every sector is much harder to wave away. It points to something structural, driven by fundamentals that run right across the small-cap market, not a momentum trade lifting a few fashionable names.

Big tech is footing the bill

Much of the fuel for this breadth is the very spending that has investors nervous at the top of the market. The largest technology companies are expected to spend around 725 billion dollars on AI infrastructure this year, more than 70 per cent up on last year. Little of that money stays inside the megacaps. It flows out to the smaller industrial, technology and infrastructure firms that supply the build-out, and into a broader economy that runs warmer for it.

Investors have taken note. With doubts growing over whether the hyperscalers can turn that capital into profit, many would rather own the companies being paid by the boom than the ones picking up the tab. Small caps have become one of the cleaner ways to hold the AI build-out, without paying megacap multiples or wearing the concentration risk now sitting at the top of the index.

Cheap, and finally catching a bid

The valuation argument for small caps is not new. It has been made for years, and for years they simply stayed cheap and got cheaper. What has changed is that the discount has finally met a catalyst. Even after this run, small caps trade well below large caps, one of the widest gaps in decades. Low starting valuations alongside a broad, fundamentally driven tailwind is the kind of setup a patient buyer waits for.

One caveat is worth stating. When a rally is this broad, even passive exposure does well, and owning the index has been a good trade in 2026. The real test comes when breadth narrows again, as it always does in the end. That is when owning the asset class stops being enough, and which companies you hold counts even more.

Built for this terrain

This is the sort of market Savana was built for. Small caps are covered by fewer analysts and priced less efficiently than the megacaps, so valuations are more dispersed and mispricings more common. Our algorithms work through thousands of these companies without emotion, hunting for the ones trading well below what our models say they are worth.

The result is a portfolio that looks nothing like the index. The Savana US Small Caps Active ETF (ASX: SVNP) trades on about 7 times trailing earnings, against roughly 31 times for its benchmark, at half the index's price to book, with a dividend yield above 3.5 per cent. These are recognisable, cash-generative businesses the market has overlooked, not speculative stories.

The approach has worked. Since the strategy launched in November 2024, SVNP has returned 17.3 per cent a year after fees, against 7.2 per cent for the S&P Small Cap 600, more than 10 percentage points of outperformance a year. Over the past twelve months it returned 33.0 per cent to the benchmark's 22.5 per cent, and in 2025 it returned 12.9 per cent while the benchmark fell.

The opportunity has broadened

Breadth like this is rare, and it will not last indefinitely. While it holds, it is a reminder that the opportunity in equities now reaches well beyond the handful of names that ran the last two years. The index will capture the beta of that shift. Picking the right companies within it, at the right price, is where the rest of the return sits.

About Savana Active ETFs

Savana Asset Management is an active ETF specialist that builds portfolios using proprietary algorithms grounded in a decade of research into collective intelligence and complex systems. Savana is the manager of Savana US Small Caps Active ETF (ASX: SVNP).