Neuberger’s Brett Reiner reveals why small-cap funds are big post-election winners.

Small-company stocks are enjoying a heyday.

They’ve been one of the big winners in the post-election stock market rally, largely due to the belief that they are poised to benefit more than other companies from President-elect Donald Trump’s proposed policies.

We spoke with Brett Reiner, a managing director and associate portfolio manager at the Neuberger Berman Genesis fund, about this recent run-up. He is part of the nine-person team behind the fund, which focuses on “boring but high-quality businesses” in the small cap market, essentially those with high cash flow, good return on capital and conservative balance sheets. Answers have been edited for length and clarity.

Q. Can you explain why there’s been this run-up in the stocks of small and mid-sized companies?

A. Just to give you some numbers, since the election the Russell 2000 is up about 15 percent. That compares to the S&P 500 being up about 6 percent. All the outperformance has occurred since the election.

That is the case for a few reasons. I think there’s a view by the market, including us, that President-elect Trump’s policies are pro-U.S. and pro-growth, so that is particularly beneficial.

Small companies derive more of their revenue and profit from the U.S. and they have meaningfully higher tax rates because of their focus on American revenue. So any change in tax policy will have disproportionately greater impact. Also there is talk of simplifying regulatory systems and

smaller companies have had a tougher time navigating through the regulatory issues because of their size and scale.

Q. Are the assumptions in the marketplace about small companies correct?

A. Small cap companies should be the best positioned to benefit from these polices, while being less exposed to risks of protectionism. That is critical to understand.

One thing we get asked about a lot is about interest rates. Clearly there would be an impact on all companies that have debt. For our portfolio, we have companies that have conservative balance sheets, so we think our portfolio would benefit from higher rates. Higher interest rates should have a minimal impact on our companies’ earnings. Q. Is it dumb to jump in now? A. The market is anticipating positive change, but companies are still performing

under the current environment, where change hasn’t occurred.

Q. Is there anything else investors should know?

A. We think investors should closely monitor what the president-elect and the Republican Congress are saying. While it’s hard to predict the future, what is being discussed is not modest change, it could be meaningful change and that is what the market is reacting to.

The market would not be reacting this way if Hillary Clinton would have become president because that would have been more incremental or gradual change. What’s being discussed now is really transformational change, change that will lead to a very different business environment.

That is why you are seeing gains in the market and why the market is picking winners and losers in terms of sectors.