The companies are not as well established or as financially stable. Typically, they don't even pay dividends. Often, you're investing in a new firm that is struggling to succeed when you invest in small-cap firms. Over the past year, their performance has been stellar. But, if you go back to the long bull market in the 1990s, you can see that their performance considerably lagged that of large firms.
Small firms seem to be the beneficiaries of interest rate cuts.
It gives them an opportunity to grow their business through cheaper financing. Chances are they weren't as bloated with inventory as were the large firms and are eagerly looking to expand given the improved interest rate climate. Historically, small firms have not performed as well, however, over the long haul as have the large firms though they tend to perform better during market downturns perhaps because they can profit from a declining interest rate environment more than large firms. Over the last year, mid-cap firms have been the stars. They aren't as volatile as small cap firms or as overvalued as large cap firms.