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This month, we explore if and how the long-anticipated U.S. market broadening trend is finally gaining traction and why U.S. small caps and S&P 500 equal-weight strategies may be well-positioned to benefit from the current late-cycle market environment.

Recent relative performance[1] and UCITS ETF flow-momentum[2] across major U.S. indices confirm a key theme from our latest Spotlights: US market leadership has started to broaden significantly since November (see charts 1 & 2 below).
After years of outsized returns from a narrow group of U.S. mega-cap tech names - driving S&P 500 concentration to multi-decade highs[3]- a clear rotation has been unfolding in recent months, accelerating further year-to-date[2]. Small- and mid-caps are now outperforming the previously favoured benchmarks[1]. Notably, both U.S. small caps and equal-weight UCITS ETF categories, have reversed their multi-billion-euro outflows in 2025 and attracted substantial inflows year-to-date (see chart 3).[2]
Such dynamics typically emerge when investors grow more confident in the resilience of economic growth and are willing to rotate beyond perceived “safe” market leaders toward more cyclical, higher beta, and domestically exposed segments. Against this backdrop, we see ample room for this allocation shift to continue through 2026.
Key U.S. indices’ performance comparison measured in USD
Source: DWS International GmbH, Bloomberg, as of 23.01.2026. Period: 31.12.2024 to 30.01.2026. Performance numbers in USD. Past performance is not a reliable indicator of future results.
Historical performance ranking (in USD)
Source: DWS International GmbH, Bloomberg, as of 23.01.2026. Period: 31.12.2025 to 30.01.2026. Past performance is not a reliable indicator of future returns. S&P 500 INDEX refers to SPX Index, S&P 500 Equal Weighted Index refers to SPW Index, Russell 2000 Index refers to RTY Index, Nasdaq-100 Index refers to NDX Index in Bloomberg.

The broadening in market leadership is thus far supported by three powerful forces which, especially in combination, have the potential to carry the rotation meaningfully further.
Source: DWS International GmbH, ETFBook.com data. Data as per end of 31.01.2026. Note: The mentioned flow numbers and the underlying analysis are based on an internal Xtrackers ETF database using ETFBook.com data, in which ETFs are allocated by Xtrackers to a classification based on the underlying exposure. There may be deviations compared to other sources.

From a portfolio construction perspective, this transition is compelling. Equal‑weighted allocations naturally reduce concentration risk, introduce a value‑tilted profile, and still deliver a solid long‑term performance record. They tend to benefit when market breadth increases, offering a more balanced expression of U.S. equities[3]. Meanwhile, small caps offer cyclical leverage, stronger ties to domestic growth, and structural diversification benefits, often representing sectors under-represented in cap-weighted indices[9].
Further interesting market segments to consider when playing this trend are value and cyclical sectors such as industrials, energy, and materials which typically also tend to outperform in this environment.

For further insights and analysis on the historically high U.S. equity market concentration and diversification opportunities through greater market breadth, please look at our short research paper "Broadening in equities: now or never?". For further insights on U.S. small caps, please look at the September Spotlight.
Risks to the view:
Systemic shocks—such as recessionary pressures or geopolitical dislocations—trigger broad risk-off sentiment, with equities typically bearing the brunt. Defensive sectors may underperform if inflation reaccelerates or central banks turn more hawkish. Market leadership can rotate quickly, especially if investor sentiment shifts toward cyclical or speculative growth.
Key Risks:
The value of an investment in Xtrackers ETFs may go down as well as up. Past performance does not predict future returns.
For further information regarding risk factors, please refer to the risk factors section of the relevant prospectus and the Key Investor Information Document.