John Rogers Targets Covista, Small-Caps Rally Broadens
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
small-capjohn-rogers
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Veteran investor John Rogers of Ariel Investments signaled a significant shift in market leadership on June 25, 2026, by highlighting a new bullish position in the small-cap for-profit education company Covista. Rogers, whose Ariel Fund has delivered a 9.4% year-to-date return through May, pointed to this move as indicative of a broadening rally beyond the technology mega-caps that have dominated gains for the past three years. The disclosure was made during a media interview, underscoring a renewed institutional focus on undervalued segments of the market.
The last time the small-cap Russell 2000 index materially outperformed the large-cap S&P 500 for a full quarter was in Q4 of 2023, when it surged 18% versus the S&P's 11% gain. That rally was fueled by expectations of imminent Federal Reserve rate cuts. The current macro backdrop features a 10-year Treasury yield at 4.25% and a Federal Reserve that has held rates steady since its last 25 basis point cut in March 2026.
What changed to trigger this renewed small-cap interest is a combination of valuation dispersion and shifting liquidity expectations. The S&P 500's forward price-to-earnings ratio currently sits at 22.5, while the Russell 2000 trades at a multiple of 17.8. This 26% valuation discount is near its widest point since 2021, creating a compelling entry point for value-oriented managers like Rogers.
The catalyst for the current rotation is a perceived decrease in near-term recession risk, coupled with steady corporate earnings growth outside the technology sector. The Fed's current pause has provided a stable rate environment where smaller companies, which are more sensitive to borrowing costs, can plan with greater certainty. This stability allows investors to look past short-term volatility toward longer-term fundamentals.
Covista, the specific company Rogers cited, has a current market capitalization of approximately $850 million. Its stock price closed at $34.20 on June 24, 2026. The company reported revenue of $412 million for its last fiscal year, representing annual growth of 8.5%. Its operating margin stands at 14.2%, which compares favorably to the broader for-profit education sector average of 11.8%.
A performance comparison shows the recent divergence between market capitalizations. Year-to-date, the Nasdaq-100 technology index is up 9.1%. Over the same period, the Russell 2000 small-cap index has gained 14.3% for the second quarter alone, significantly outpacing its larger peers. The S&P 500 has risen 7.8% year-to-date.
| Index | YTD Return (as of June 24) | Forward P/E Ratio |
|---|---|---|
| Russell 2000 | +14.3% | 17.8 |
| S&P 500 | +7.8% | 22.5 |
This momentum is supported by fund flow data. According to the Investment Company Institute, small-cap equity funds have seen four consecutive weeks of net inflows totaling $4.2 billion through the week ending June 18. Conversely, large-cap growth funds have experienced net outflows of $1.8 billion over the same period.
The rotation into small-caps has clear second-order effects across sectors. Within financials, regional banks like Fifth Third Bancorp and KeyCorp stand to benefit from increased commercial lending activity to smaller businesses. Industrials such as SPX Technologies and Chart Industries could see order growth as capital expenditure cycles broaden. Conversely, the trade is a headwind for the largest technology holdings that have dominated index returns, potentially pressuring names like Apple and Microsoft to consolidate recent gains.
A key limitation to this thesis is small-cap earnings resilience. While the valuation gap is wide, the Russell 2000's aggregate earnings growth forecast for the next twelve months is 12%, which is only marginally higher than the S&P 500's 11% forecast. A steeper recession than currently anticipated would disproportionately hurt these smaller, less diversified firms. The risk of higher credit spreads also remains a persistent threat to their financing costs.
Positioning data from the Commodity Futures Trading Commission shows asset managers have increased their net long exposure in Russell 2000 futures contracts to the highest level since January 2024. Hedge funds, however, remain net short, creating a potential friction point for the rally. Flow is moving out of concentrated technology ETFs and into broader small-cap and value-oriented products, indicating a strategic reallocation rather than a short-term tactical trade.
Investors should monitor two specific catalysts in the coming weeks. The Federal Open Market Committee's next policy statement on July 30, 2026, will provide critical guidance on the path of interest rates for the second half of the year. Any signal of a prolonged pause or further cuts would support the small-cap rally. Secondly, the Q2 2026 earnings season, beginning in mid-July, will test the thesis that small-cap earnings can keep pace with their recent price appreciation.
Key technical levels to watch include the Russell 2000 index holding above its 200-day moving average, currently at 2,150. A sustained break above the 2,350 level, last seen in early 2025, would confirm a major breakout and likely attract more institutional capital. For Covista specifically, the stock faces technical resistance near the $38.50 mark, its 52-week high.
If the Institute for Supply Management's Manufacturing PMI, due for release on July 1, shows a reading above 50, indicating expansion, it would reinforce the broadening economic activity supporting smaller companies. A reading below 48, however, could quickly reverse the recent rotation and send funds back toward defensive large-caps.
John Rogers' Ariel Fund has a long-term record of outperformance in small-cap value investing. Over the past 15 years, the fund has delivered an annualized return of 10.2%, compared to 9.5% for the Russell 2000 Value Index. His strategy typically involves holding stocks for an average of seven years, focusing on companies with strong free cash flow and durable competitive advantages that are temporarily out of favor with the broader market.
The for-profit education sector faces regulatory risk from changes in federal student loan programs and accreditation standards. Enrollment trends are highly sensitive to labor market conditions, as demand often increases during economic downturns. Companies also carry reputational risk from outcomes-based metrics like student loan default rates and graduate employment statistics, which can directly impact their eligibility for federal funding, a major revenue source.
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