SOAR advisers recommend shifting U.S. equity exposure toward mid-cap, trimming small-cap overweight

Advisers to the St. Mary’s County Sheriff’s Office Retirement Plan (SOAR) told the board on March 27 that the plan’s U.S. equity mix is modestly overweight small-cap stocks and underweight large and mid caps, and recommended shifting some assets into mid-cap strategies to reduce volatility risk and improve long-term positioning.

Patrick Wing of Workette Associates led a detailed review of the plan’s U.S. equity structure and historical performance, saying the SOAR allocation is concentrated in five funds: a broad Vanguard Total Stock Market index fund plus four “satellite” managers (large-cap growth, large-cap value, small-cap value and small-cap core/growth). Wing said the combination produces roughly a 2-percentage-point overweight to small caps (about 10% of the plan’s U.S. equity sleeve versus roughly 8% representation in the benchmark), which he characterized as “a decent overweight” because small caps make up a small share of the broad market.

The presentation summarized long-term return, volatility and valuation data across large-, mid- and small-cap segments. Wing noted that over multi-decade periods mid caps have delivered competitive returns with more favorable risk‑adjusted metrics than small caps, and that growth/value and cap-size history influence expected drawdowns: “mid caps…are, you know, in theory, kind of the best of both worlds,” he said. He also flagged that the plan’s large-cap exposure is therefore modestly underweight to the market and that some of the plan’s underweight to large caps has been helpful in the current pullback because recent market declines were concentrated in large‑cap growth names.

On valuations, Wing showed that many market segments were trading above their own historical medians in February 2025, particularly large-cap growth. By contrast, mid-cap and small-cap value segments looked relatively cheaper in the adviser’s cross‑sectional comparison. Based on that combination of long-term performance and current valuations, Workette’s recommendation for the board to consider was to reduce the small-cap overweight and shift some large-cap exposure into mid caps.

Specific implementation options Wing outlined included: swapping the current large-cap value index fund for another index or active fund that has greater mid‑cap exposure (shifting large into mid by substitution); converting a dedicated small-cap allocation into a SMID (small‑and‑mid cap) strategy to reduce the pure small‑cap weight; or performing targeted manager replacements where the same investment team offers SMID or mid‑cap products (he cited Kane Anderson Rudnick as an example of a team with similar processes across small/SMID/mid products). Wing said the exercise would be multi‑meeting and recommended returning with candidate fund options and sizing recommendations for board consideration in subsequent months.

Board members asked clarifying questions about the mechanics and horizon for the recommendation. John Walters (citizen member) asked whether the plan should evaluate a five- to 10-year horizon for allocation decisions; Wing answered that asset-allocation decisions are long‑term in nature and that modest, margin-improving adjustments are the objective rather than large tactical bets. The board discussed keeping the overall structure simple (limiting the number of additional managers) and using straightforward swaps where possible.

No formal allocation vote was held at the March meeting. Wing proposed a process and timeline for follow-up: a focused search in April for alternative large‑value/index options, a deeper US-equity implementation review at the April meeting, and a plan to finalize any manager or index swaps by the June meeting (with flexibility to extend to July if needed). Board members agreed to continue the evaluation.

Why this matters: Small‑cap overweighting can increase portfolio volatility and susceptibility to larger drawdowns; advisers told the board that shifting modestly toward mid caps could preserve some upside while lowering expected drawdown magnitude over market cycles.

Provenance: Presentation and discussion led by Patrick Wing of Workette Associates (topic introduction at 00:02:03; discussion continued through 00:51:44)