By Gregory Lai, CFA
A friend of mine, Sterling Colyer of Advisors Asset Management, recently wrote an interesting piece about the “belly” of the yield curve.
His argument was fairly straightforward. Investors have been sitting in cash, waiting to see what the Federal Reserve will do next. But the bond market doesn’t wait for the Fed. It prices in what it believes the Fed will do before the Fed actually does it.
Sterling compared it to a city announcing that it will build a new highway exit. Property values near the proposed exit adjust when the announcement is made—not three years later, when the ribbon is finally cut. Anyone who waits for the exit to open may have more certainty, but they will probably pay a higher price.
His point was that the belly of the yield curve may already offer attractive value. Investors can lock in yields on intermediate-term bonds that are higher than the peak short-term rate the market currently expects the Fed to reach.
Makes sense.
But as I read Sterling’s piece, I have to admit my mind went somewhere else.
Korean BBQ.
More specifically, grilled pork belly. Yum!
But after I stopped thinking with my stomach and started thinking with my brain, I wondered whether Sterling’s idea might apply somewhere else.
Does the stock market have a belly?
And if it does, could there be an opportunity hiding there too?
Beyond the Barbell: Mid-Cap Investment Opportunities
Today, it seems like almost all the attention in the stock market is focused on the “ends.”
At one end are the mega-cap companies: the Magnificent Seven, AI, Death Star NVIDIA, and the handful of companies that increasingly dominate both the indexes and the headlines—great companies—and, in many cases, great investments.
At the other end are small-cap stocks. For years, we have heard that small caps are cheap, that they’ll eventually come back, and that maybe this is finally their time.
Mega caps at one end. Small caps at the other.
A barbell.
But what about everything in between?
Call it the belly of the equity market—and, more importantly, still un-grilled.
These aren’t tiny companies waiting to be discovered. Nor are they the mega-cap companies everybody already knows. They are established mid- and large-cap companies, many of them making plenty of money, growing earnings and improving their fundamentals.
But here is the interesting part.
Some of them can still be purchased at valuations that don’t require everything to go right.
Maybe Sterling is onto something.
Why the Middle of the Stock Market Deserves a Closer Look
One interesting thing about investing is that everyone can look at the same market and see something completely different. Today, market-cap-weighted indexes naturally direct more and more money toward the companies that have already become the largest.
As a company’s stock price rises, its weight in the index rises with it. And as more dollars flow into index strategies, more dollars are allocated to those same companies.
Market-cap weighting can reinforce momentum: success creates size, and one gets “more of the same.”
Nothing wrong with that.
But does that mean the next opportunity has to be there?
Maybe not.
This is where the belly gets interesting.
Plenty of companies outside the mega-cap names have more reasonable valuations and improving fundamentals. They don’t necessarily have the exciting story of the moment. CNBC may not talk about them every hour. Your neighbor probably isn’t telling you about one over Korean BBQ—or Mahjong, for that matter.
Good.
Because sometimes the headline comes after the opportunity.
Finding Value Beyond the Mega-Cap Trade
That is essentially what we have seen in our Flagship Equity strategy. The discipline is pretty straightforward: look for companies trading cheaply relative to their own earnings power while their fundamentals are improving.
This disciplined approach to identifying investment opportunities reflects the importance of thoughtful investment management in building and preserving long-term wealth.
Cheap alone isn’t enough.
Improving fundamentals alone isn’t enough.
We want both.
This year, that meant owning a couple of technology and semiconductor companies months before the headlines made them famous. We weren’t reacting to stocks that were already moving. The valuation and improving fundamentals got us there first.
Chase the tape, and you’re already late to the point. Get there on the fundamentals, and you’re already standing at the net when the ball arrives.
And it has shown up on the scoreboard. Flagship Equity returned 17.51%, net of fees, in the second quarter of 2026, versus 15.20% for the S&P 500. Year-to-date through June, it returned 14.76%, compared with 10.21% for the index. The edge has also held over the trailing one- and three-year periods.
The broader market has been telling a similar—and surprisingly underreported—story. Through September 14, 2026, the Russell 1000 Value Index was up more than 22% year to date, while the Russell 1000 Growth Index was up a mere 2.8%.
Say it ain’t so!
How is that possible with all the “news” surrounding AI and technology?
As always, past performance is not indicative of future results.
The Belly of the Equity Market: An Opportunity Worth Exploring
So maybe Sterling’s observation about bonds tells us something about stocks too.
Investors tend to gravitate toward the ends. Today, it’s the biggest companies on one side and the promise of small-cap bargains on the other. In fact, it isn’t unusual to see investors significantly overweight small-cap stocks while remaining heavily exposed to the same mega-cap names that dominate the market-cap-weighted indexes.
But sometimes the interesting stuff is sitting in between.
Sterling calls it the belly of the yield curve.
I’m beginning to think equities have a belly too.
And if you still don’t believe the belly can be the best part, have Korean BBQ with me.
I’ll order the pork belly.