As the Federal Reserve signals further interest rate increases to combat inflation, investors are reassessing their exposure to rate-sensitive sectors like technology and real estate. Both have been staples of growth portfolios, but their sensitivity to borrowing costs and lofty valuations are prompting a search for alternatives. Small-capitalization stocks are emerging as a compelling option, offering the potential for growth as these companies are earlier in their business cycles and often overlooked by Wall Street. The Russell 2000 Index, a benchmark for small-cap U.S. companies, is up 13% year-to-date as of Oct. 5, 2026, with industrials, financials, and energy leading the way. The S&P SmallCap 600 has gained nearly 15% over the same period, driven by similar sectors. Past performance does not guarantee future results, and investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Beyond capital appreciation, small-cap stocks can serve as a source of income. Some dividend-paying small-caps offer yields that surpass those of large-cap counterparts, providing a rare combination of regular income and growth potential. That income can buffer against market swings and be reinvested. However, identifying companies with reliable cash flow and growth requires skilled management. The Infrastructure Capital Small Cap Income ETF (NYSE: SCAP) is an actively managed fund that aims to achieve above-average yield by investing at least 80% of its net assets in an income-oriented portfolio of small-cap stocks.
SCAP is managed by Infrastructure Capital Founder, CEO, and Portfolio Manager Jay D. Hatfield, who brings nearly thirty years of experience in financial markets. His background as an investment banker, portfolio manager, and research director informs a disciplined approach to small-cap, income-paying stocks. The fund targets above-average yield through small-cap equities and the use of convertible and preferred securities, with sector concentrations in aerospace and defense, homebuilding, casinos and gaming, regional banks, and mortgage REITs.
When selecting companies, Hatfield and his team use internal price targets based on the relationship between earnings growth and price-to-earnings ratios. They also employ selective option writing and modest leverage to generate additional income while retaining upside market exposure. As of the end of June, the 30-day SEC yield was 4.08%, reflecting annualized net yield from underlying dividends and interest. The ETF seeks enhanced yield by writing index and single-stock options aligned with its price targets. Because it is actively managed, the team maintains relationships with issuer management teams to gauge earnings estimates and forward-looking outlooks. This deep research allows SCAP to invest in companies earlier in their growth cycle, potentially capturing upside relative to market expectations given less analyst coverage.
With interest rates possibly rising and volatility persistent, tech may not be the only avenue for growth. Small-cap stocks, particularly quality ones paying income, can be attractive. The fund’s expense ratio is 2.20%, reflecting its active management. For investors seeking to learn more about SCAP, additional details are available through the published on Benzinga article, and further disclosures can be found here. This content is for informational purposes only and is not intended as investing advice or an offer or solicitation to buy or sell any security.
