Four small-cap financials that look set for a rebound even as the Fed raises rates

The Fed’s first rate hike in more than three years has prompted investors to reassess their outlook for the financial sector: higher rates may support bank margins, but they also reduce demand for loans and raise funding costs. Oninvest analyst Aldiyar Anuarbekov has looked at 84 liquid financial small caps and picked four that have fallen significantly and could see a rerating.

At its September 15-16 meeting, the Fed unanimously raised its benchmark interest rate by 0.25 percentage point to 3.75-4.00%, as the market had expected. This was its first tightening of policy in more than three years: after raising rates in 2022-2023, the Fed had cut them in 2024 and 2025. The Fed attributed its decision to persistently high inflation and solid economic growth, while CNBC linked the stronger price pressures in part to the sharp rise in oil prices.

Higher rates may increase banks’ net interest margins, but the effect is not always positive. Following the Fed’s decision, the KBW Nasdaq Regional Banking Index fell 1.5%, as investors worried about higher funding costs, weaker demand for loans, and pressure on banks that are reliant on interest income. Mortgage rates have already crossed a key psychological line: the rate on a 30-year loan has reached 7.12%, its highest level in more than two years, while applications for home purchases and refinancing continue to decline.

Because mortgage rates track the 10-year U.S. Treasury yield, which is at its highest level in almost two decades, borrowing costs may remain around 7% at least through the end of the year. This pressure is particularly acute for smaller financial companies with less diversified revenue and more expensive access to capital, although heavily discounted stocks may offer rerating opportunities.

Oninvest has examined 84 liquid small-cap financial companies with positive returns on equity and positive expected earnings. The screening considered stock performance, projected earnings growth, and three metrics: price/forward earnings (a company's share price versus its expected earnings per share); price/book value (a company's market value versus its book value, total assets minus total liabilities); and return on equity (measuring how effectively a company uses shareholders' equity to generate net income). The final four stocks have fallen significantly but retain the potential to bounce back.

UWM Holdings (NYSE: UWMC)

The largest mortgage lender in the U.S. posted a net loss of $451.9 million in the second quarter of 2026 versus net income of $314.5 million a year earlier. The main reason was a $603.2 million loss on a hedge established ahead of its unsuccessful attempt to acquire mortgage REIT Two Harbors.

To strengthen its balance sheet, UWM suspended its dividend and raised $1.65 billion from Oaktree and the CEO’s family, while it plans to raise up to another $400 million through a rights offering. Morgan Stanley estimates this could reduce UWM’s debt from around 6.0 times its equity to 1.2 times. However, the financing is expensive: the preferred shares carry a 10-13% dividend, while warrants for 330 million shares create a risk of substantial dilution.

The core business, meanwhile, has retained its scale: in the second quarter, UWM held a 40.5% share of the wholesale mortgage market, more than the next 18 competitors combined. Its gain-on-sale margin rose to 1.33% from 1.13%, although adjusted EBITDA fell around 5% to $185.9 million. Based on Oninvest calculations, suspending the dividend and related distributions to holders of equity interests in the operating company could preserve around $640 million annually, assuming quarterly shareholder payments of $160 million.

Analyst views vary significantly. Barclays has most recently maintained its “overweight” rating while cutting its target price to $2 from $4 per share. Deutsche Bank has lowered its TP to $1.50 from $3.50 per share while keeping its “hold” rating, while KBW has cut its TP to $2.75 from $3.75 per share and maintained its “outperform” call. At a current share price of $1.26 per share, these TPs imply as much as around 118% upside. Barclays’ bull-case valuation of $6 per share suggests the stock could gain around 380%, but that would require the company to reduce its debt significantly and the mortgage market to recover.

Fiera Capital (TSX: FSZ)

Canada’s Fiera Capital has CAD163.5 billion in assets under management, equivalent to around $118 billion. In the second quarter, AUM grew 2.1% as market gains more than offset CAD7.6 billion in net outflows from public-market strategies. Revenue, meanwhile, fell 4.8% to CAD155.1 million.

The largest setback was a client’s withdrawal of CAD5.3 billion from portfolios that Fiera managed as a subadvisor. According to TD Cowen, the mandate went to PineStone, founded by former Fiera global equities head Nadim Rizk. Another risk emerged in August, when the company fired lead Canadian equities portfolio manager Nessim Mansoor and sued him and five former employees, alleging that they conspired to move clients to a competitor.

Leverage remains high: Fiera’s net debt equaled 3.8 times adjusted EBITDA over the last 12 months. TD Cowen’s calculation used to assess compliance with debt covenants put net debt at 3.3 times EBITDA, versus a permitted maximum of 3.5 times. Growing cash flow, along with the higher-fee private-markets business, should help offset the risks: private markets account for just 14% of AUM but 37% of revenue. Free cash flow over the last 12 months rose 23.4% to CAD92.9 million, around twice the company's dividend expense. Fiera also cut first-half expenses by 5.5% and renewed its buyback program for up to 4 million shares. At a current share price of CAD4.38 per share, TD Cowen’s and RBC’s target prices of CAD5 per share each imply around 14% upside, in addition to a dividend yield of around 9.8%.

Regal Partners (ASX: RPL)

The Australian alternative asset manager increased its normalized net profit after tax by 108% in the first half of this year to AUD93.3 million, equivalent to around $66 million. Assets under management reached a record AUD21.4 billion on AUD1.4 billion in net inflows, the highest half-year total in the company’s history.

However, investors were concerned by cofounder Phil King’s decision to retire effective June 30, 2027. King oversees around 16% of the company’s assets. Another risk is the company’s reliance on fund performance for earnings: performance fees account for around half of revenue, while declines across several strategies in July could reduce fee income in the second half, Canaccord Genuity said in a note.

As of Tuesday, the shares had fallen to AUD2.30 per share, around 38% below their 52-week high. A new source of inflows could be the Multi-Strategy Income Fund, which is scheduled to launch this month, with a target return equal to the Reserve Bank of Australia’s cash rate plus 3.5 percentage points.

Bell Potter has maintained its “buy” rating at a target price of AUD4.80 per share, implying around 109% upside from Wednesday’s close. Canaccord Genuity has most recently reiterated its “buy” rating at a TP of AUD3.75 per share.

Bank Neo Commerce (IDX: BBYB)

The Indonesian digital bank grew its 2026 first-half net income by 6.81% year over year to IDR294.85 billion, equivalent to around $16.4 million, supported by growth in net interest income and improved operating efficiency. Its loan portfolio, meanwhile, contracted almost 12% to IDR7.13 trillion, or about $394 million. However, it grew quarter over quarter in the second quarter for the first time since 2024, CGS International highlighted in a note seen by Oninvest. Asset quality has improved: nonperforming loans fell to 2.99% of total loans from 3.10% a year earlier.

The backdrop was clouded by the rupiah weakening more than 7.4% year to date and Bank Indonesia raising its benchmark rate by a total of 1 percentage point, increasing funding costs.

As of Tuesday, the shares had fallen around 53% year to date to IDR222 per share. BRI Danareksa has most recently maintained its “buy” rating at a target price of IDR400 per share, implying around 80% upside. CGS International has kept its “add” rating, equivalent to a "buy," at a TP of IDR350 per share.

This text is for informational purposes only and does not constitute personalized investment advice.