Highlights from Small-Caps: Royce Fund Forecast, Trump's Sons' Investments, the Chewy Case Study
The Russell 2000 rose 21.5% in the second quarter, outperforming the Russell 1000 large-cap index, which gained 15.1% over the same period / Photo: Facebook / NYSE
In the second quarter, micro- and small-cap indices outperformed their large-cap counterparts—the Royce Fund, which specializes in investments in this segment, explained the reasons behind the growth and assessed its prospects. A fund involving Trump’s sons made “hundreds of millions” on micro-cap trades—Bloomberg provided the details. Online pet supplies retailer Chewy became one of the most attractive investments alongside Nvidia and Hewlett Packard. Highlights from the week of July 6–10 are in the Oninvest digest.
The Russell 2000 Outperformed Its Major Competitors
At the end of the second quarter, the Russell Microcap Index rose 25.6%, the Russell 2000 Index rose 21.5%, while the Russell 1000 Index of large-cap companies rose 15.1%. Francis Gannon, Managing Director of Investments at Royce Investment Partners, explained in his report that the growth was driven by increased spending on AI infrastructure, strong consumer spending, and improved corporate earnings—despite geopolitical tensions, inflation, and high volatility in energy prices.
Ganon believes that small-cap stocks will continue to lead the market over the longer term and adds that concerns about the impact of a potential rise in interest rates on small-caps are exaggerated. He considers the combination of attractive valuations and expected earnings growth for small- and micro-caps to be the most important factor for continued success.
A fund involving Trump's sons has made hundreds of millions from micro-cap trades
Dominari Holdings, a small investment bank with a market capitalization of about $66 million—whose advisors and shareholders include Donald Trump Jr. and Eric Trump—has found itself in the spotlight among retail investors. Dominari owns 90% of American Ventures Management LLC, and Bloomberg estimated the fund’s paper (unrealized) gains on warrants to be “hundreds of millions of dollars” in its investigation.
The fund’s structure is based on the use of warrants—securities that grant the right to purchase a share at a predetermined price. If a company’s stock price rises, the value of the warrants increases significantly. Bloomberg notes that the use of warrants is a recurring pattern in several deals involving the American Ventures fund and Dominari Holdings. Moreover, in the micro- and small-cap markets where the fund invests, even a small influx of capital can drive up stock prices, and the involvement of Donald Trump’s sons attracts the attention of retail investors.
Chewy's stock could rise by 50%
Shares of Chewy, an online retailer of pet supplies, have been named among the most attractive stocks by Two Sigma, one of the largest quantitative hedge funds, according to the investment portal Insider Monkey. The list also includes shares of Nvidia and Hewlett Packard.
Chewy’s stock has lost nearly 38% of its value since the start of the year. Anticipating more subdued demand, the company lowered its revenue forecast for 2026, despite growth in key financial metrics. However, analysts view Chewy’s outlook with optimism: BofA Securities cites the expansion of the pet food segment, cost savings from AI, and the growth of the veterinary business as the company’s strengths. This year, the company closed a deal to acquire the Modern Animal network of 29 clinics and a digital veterinary platform for $400 million, and late last year, it acquired SmartEquine, a digital platform for horse owners.
Most Wall Street analysts who cover the company recommend buying its stock. The average price target is $30.82, which implies upside potential of about 50%.
