Are Private Markets the New Small-Caps?

Why It Matters

Recognizing private companies as the modern small‑cap segment forces investors to rethink exposure, risk, and return expectations, potentially reshaping portfolio construction and the future of public offerings.

Key Takeaways

• Private companies act as modern small‑cap opportunities for investors
• Small‑cap value ETFs have approached S&P 500 long‑term returns
• Large caps still outperform small caps despite recent small‑cap gains
• ETFs are beginning to allocate capital toward private‑market unicorns
• IPO dynamics may shift as private valuations dwarf public alternatives

Summary

The conversation centered on whether private‑market companies are the new small‑cap arena, as they remain private far longer than traditional small caps. Hosts compared recent small‑cap value ETF performance to the broader market and debated the relevance of IPOs in a world where private funding is abundant.

Vanguard’s Small‑Cap Value index recently hit all‑time highs and is poised to match the S&P 500’s 20‑year return record. The Advantage Small‑Cap Value ETF now leads its category, even outpacing the S&P, while a 10‑year chart shows SPY up roughly 320% versus VBR’s 190% gain, underscoring the lag but still solid growth of small caps.

A recurring quote summed the theme: “Privates are a form of the new small cap because they wait a lot longer to go public.” Speakers cited SpaceX, Anthropic and other unicorns as examples of private firms that could reshape IPO dynamics, noting that eight private companies already sit above $100 billion in valuation.

If investors treat private markets as the next frontier for early‑stage growth, allocation strategies may shift toward private‑equity‑linked ETFs and away from traditional small‑cap stocks. The trend also hints at a potential revival of high‑profile IPOs, which could alter market liquidity and valuation benchmarks.

Original Description

Is the traditional path for growth stocks broken? The ETF Zoo crew featuring ETF.com’s Dave Nadig and Sumit Roy, alongside Eric Balchunas of Bloomberg Intelligence and Factset’s Elisabeth Kashner break down a massive shift in the financial landscape: Why the "toddlers and teenagers" of the corporate world are avoiding the public markets, and what that means for your portfolio.

From the resurgence of small-cap value to the looming IPO of SpaceX, we explore whether the next decade of investing looks anything like the last.

Highlights from this conversation include:

Eric Balchunas claims public small-cap indices have become a "dumping ground" for older companies, while the real growth stays private. At the same time, small-cap value ETFs are smashing performance.

Is the journey of SpaceX indicative of the new norm for unicorns and even small-caps? Elon Musk’s aerospace giant—valued higher than Walmart—could change the rules for index inclusion and make IPOs "cool” again.

"VOO and Chill": Is market timing a fool's errand? We discuss the importance of efficiency and the "Boglehead" philosophy in a chaotic news cycle.

To see this conversation with a full transcript, go here: https://www.etf.com/sections/equity/privates-are-form-new-small-cap