Barclays and Shiller Target SMID Value Beyond Mega-Cap Mania

LONDON & NEW YORK – June 24, 2026 – In a market increasingly dominated by a handful of mega-cap behemoths, Barclays has launched a new tool for investors seeking value elsewhere. The firm today announced the Shiller Barclays CAPE® US SMID Sector Index, extending its long-standing collaboration with Nobel laureate Robert Shiller to the often-overlooked universe of U.S. small and mid-cap (SMID) equities. The move signals a calculated bet that the next wave of growth and value lies not among the giants, but within the engine room of the American economy.

This launch is not merely an expansion of a product line; it is a direct response to a growing investor dilemma. With market concentration in large-cap indexes reaching historic highs, asset allocators are grappling with heightened risk and diminishing diversification. The new index aims to provide a systematic, academically-grounded alternative, applying Professor Shiller’s celebrated valuation methodology to unearth opportunities in a market segment known for its distinct growth profile and closer ties to the domestic economy.

The Academic Edge in a Crowded Market

The intellectual foundation of the new index is the Cyclically Adjusted Price-to-Earnings (CAPE®) ratio, a metric Professor Shiller co-developed in 1988. Unlike the traditional P/E ratio, which relies on a single year of earnings, the CAPE® ratio smooths out the volatility of business cycles by dividing a company's or sector's price by the average of ten years of inflation-adjusted earnings. This provides a more stable and, many argue, more predictive measure of long-term valuation.

However, applying this broad-market metric to sector rotation requires nuance. The Shiller Barclays CAPE® US SMID Sector Index utilizes a “Relative CAPE®” ratio, which compares a sector’s current CAPE® to its own 20-year historical average. This allows the index to identify sectors that are cheap relative to their own past, rather than making potentially flawed comparisons across disparate industries.

The methodology, honed over a partnership with Barclays that began in 2012, also incorporates a crucial real-world safeguard: a momentum filter. After identifying the most historically undervalued sectors, the index’s rules-based system eliminates the one with the worst 12-month price momentum. This is designed to sidestep the dreaded “value trap,” where a sector appears cheap for a reason and continues to underperform due to deep-seated fundamental problems. This blend of long-term value and near-term momentum is a sophisticated attempt to capture upside while mitigating downside risk.

“Much of the innovation that shapes the future economy begins in US smaller and mid-sized companies before it becomes widely recognized,” said Robert J. Shiller, Sterling Professor Emeritus of Economics at Yale University. “This new index reflects the idea that careful attention to valuation, using the CAPE Ratio, may help investors gain exposure to parts of the American economy where entrepreneurial activity and long-term growth opportunities may exist.”

A Timely Solution for a Concentrated Market

The strategic timing of this launch cannot be overstated. Investors have watched as a small number of technology and growth stocks have driven the lion's share of returns in major large-cap indices, creating what some strategists call a “concentration crisis.” This has left many portfolios heavily exposed to the fortunes of a few companies and starved for genuine diversification. In this environment, SMID equities present a compelling alternative.

Historically, small and mid-cap stocks exhibit different characteristics than their large-cap counterparts. Their revenue streams are often more closely tied to the health of the U.S. domestic economy, offering a different risk exposure. Furthermore, as younger and more agile firms, they can possess greater growth potential. Barclays is tapping into a clear shift in investor sentiment, as allocators reassess their heavy tilt towards the top of the market.

“The US mid and small cap area present an interesting opportunity for investors to get a different exposure to US markets,” noted Benedict Redmond, Managing Director and Head of EMEA QIS Structuring at Barclays. “We are excited to see that our successful strategy, built together with Professor Shiller and team, can again provide investors a way to potentially outperform the wider market and be selective around what sectors they are exposed to.”

By systematically rotating into undervalued SMID sectors, the index offers a dynamic approach that contrasts sharply with passive, market-cap-weighted strategies that can become victims of market exuberance.

Under the Hood: Mechanics and Infrastructure

While the academic theory is compelling, the index’s practical execution relies on a robust infrastructure and a clear, rules-based process. The underlying universe for the strategy is built upon custom MSCI USA SMID Sector Indexes, a critical contribution from global index provider MSCI.

This partnership ensures the strategy is applied to a high-quality, well-defined, and consistent dataset. The custom indexes provide the necessary long-dated sector data that makes the 10-year earnings analysis of the CAPE® ratio possible for this specific market segment. “The expansion of this index family into U.S. small and mid-cap equities is an exciting next step for one of the most academically distinguished index methodologies,” said Axel Kilian, Chief Client Officer at MSCI. “We have invested significantly in creating and maintaining the long-dated sector data that makes this step possible.”

The index’s methodology stands in contrast to the broader SMID index landscape. While benchmark indexes like the Russell 2000 or S&P SmallCap 600 offer broad, passive exposure, and other factor indices may target “value” using simpler metrics like price-to-book, the Shiller Barclays index offers a multi-faceted approach. Its unique combination of a cyclically-adjusted valuation metric, a relative historical comparison, sector rotation, and a momentum screen creates a distinct proposition in the factor investing space.

The Investor's Bottom Line

For institutional investors, asset managers, and financial advisors, the new index represents more than just a new benchmark. It is a potential building block for a new generation of investment products. Barclays has a history of licensing its CAPE® index family for use in structured products, ETFs, and other vehicles, making the strategy accessible to a wider audience. The launch of the US SMID version will likely pave the way for similar product integrations.

As a strategy, it offers a disciplined, non-emotional approach to tapping into the growth potential of smaller companies while adhering to a strict valuation framework. For portfolios over-weighted in a handful of mega-cap names, products based on this index could offer a powerful tool for diversification and a chance to capture value in a segment of the market that truly represents the breadth of the American economy.

By focusing on the intersection of long-term value and economic innovation, Barclays is providing a sophisticated tool that allows investors to look beyond the headlines and systematically invest in the potential growth engines of tomorrow.