As the Federal Reserve signals further interest rate increases to combat persistent inflation, investors are increasingly looking beyond technology and real estate sectors, both of which are highly sensitive to rate changes and often carry rich valuations. Instead, many are turning to small-capitalization stocks, which can offer growth potential as younger companies early in their business cycles and often fly under Wall Street's radar. This shift is evident in recent market performance: the Russell 2000 Index, composed of 2,000 small-cap U.S. companies, is up 13% year-to-date as of October 5, 2026, with industrials, financials, and energy leading gains. Similarly, the S&P SmallCap 600 has risen nearly 15% over the same period, driven by those same sectors. While past performance does not guarantee future results, these trends highlight a growing appetite for small-cap exposure.
For investors seeking both income and growth, small-cap dividend stocks can be particularly appealing, often offering yields that surpass those of large-cap counterparts. However, identifying reliable income generators requires careful analysis. The Infrastructure Capital Small Cap Income ETF (NYSE: SCAP) addresses this need through active management. The fund aims for above-average yield by investing at least 80% of its net assets in an income-oriented portfolio of small-cap stocks, convertible securities, and preferreds. It is managed by Jay D. Hatfield, Infrastructure Capital's founder, CEO, and portfolio manager, who brings nearly thirty years of experience in financial markets. Hatfield's background as an investment banker, portfolio manager, and research director informs the fund's strategy, which targets sectors such as aerospace and defense, homebuilding, casinos and gaming, regional banks, and mortgage REITs.
SCAP's approach combines internal price targets based on earnings growth and price-to-earnings ratios with selective option writing and modest leverage to generate additional income while retaining upside potential. As of the end of June, the fund reported a 30-day SEC yield of 4.08%, reflecting annualized net yield from underlying dividends and interest. The ETF also writes index and single-stock options aligned with its price targets. With an expense ratio of 2.20%, the actively managed fund maintains relationships with issuer management teams to refine earnings estimates and forward-looking outlooks, aiming to capture opportunities in companies with less research coverage.
This strategy could provide investors with a rare combination of regular dividend income and growth potential, offering a buffer against market swings and cash flow for reinvestment. As interest rates possibly rise further and volatility persists, small-cap stocks—especially those paying income—may become increasingly attractive. The fund's focus on quality small-caps positions it as a potential avenue for diversification beyond tech. For more details on SCAP and its holdings, additional information is available through published on Benzinga, and investors can review important disclosures here.
