Dear advisors: the bottom of the style box has fallen out…

Early in our careers, we all acquired knowledge about the style box and its application. However, a critical issue lies in the evolving landscape of the small-cap sector within the style box framework, a topic that seems to be overlooked in discussions.

As financial advisors, it's relatively straightforward to guide clients toward exposure to large-cap stocks. However, the definition of what constitutes a mid- or small-cap fund has become increasingly ambiguous. Funds often climb up the style box, making a small-cap fund actually an allocation to smid- or mid-cap exposure. Outside of owning individual stocks, this can make getting exposure to high-growth small- and mid-cap companies difficult.

It has become widely recognized that companies are deferring their initial public offerings (IPOs) for extended periods, resulting in a dearth of worthwhile offerings in the small-cap sector. High-growth, venture-backed companies are increasingly staying private longer, with their eventual IPOs placing them well into the mid-cap range. Access to these companies is extremely limited through the public markets, making the shift to private market allocations more important.

In response to this shifting landscape, a number of the investment advisors we collaborate with have embarked on endeavors to assist their clients in investing in growth-stage venture-backed companies that have not yet undergone an IPO. These investments are facilitated through V2 Markets, either as single-asset allocations or as part of pooled offerings.