The mice have roared in the past year.It may have escaped your notice as the broad market this year has climbed despite worries over war, inflation, interest rates, artificial intelligence spending, and mega-initial public offerings, but very small stocks and funds that own them have had a very big run.Micro-caps started outperforming the broad market and its large-, mid-, and small-cap strata about a year ago. In the trailing year through Aug. 17, 2026—roughly the middle of the month, the Morningstar US Micro Cap Index, which includes the smallest 3% of domestic equities—walloped the Morningstar US Market Index 45.7% to 22.8%. Morningstar’s broad small-, mid-, and large-cap benchmarks also ate micro-cap dust.Naturally, this trend has been great for mutual and exchange-traded funds that own a lot of micro-cap stocks. Sorting small-cap funds and ETFs at least a year old with more than $100 million in total assets into five buckets by their stakes in what Morningstar considers micro-caps shows smaller has been better in the past year. Over the past 12 months, the first bucket, or quintile, which included funds that had between 51% and 100% of their money in micro-caps, gained an average of more than 33% and beat two-thirds of their respective category peers in the year ending Aug. 17. Meanwhile funds in the fifth quintile, which had less than 19.6% in smallest of the small-cap stocks, gained about 26.0%, but lagged more than 61.0% of their respective peers.Many small-cap managers use a different definition of micro-cap than Morningstar, often setting absolute market-cap levels, such as $300 million or $1 billion, as a cutoff. Slicing the small-cap funds into quintiles by their average market cap, rather than by amount of assets in the US market’s bottom 3% of market cap, produced similar results, though. The smallest average market-cap quintile still posted better average returns and category ranks than the fifth of small-cap funds with the largest average market caps.With a few exceptions, the same factors that have been driving the rest of the market up—exuberance for and extravagant spending on all things AI—have propelled micro-caps and funds and ETFs with generous portions of them. Dividing small-cap funds with more than $100 million in assets and more than half their assets in micro-caps into five groups by their technology sector weightings and looking at their performance over the past year shows that micro-cap heavy strategies with more than 18% of assets in tech stocks posted much better returns and achieved much better category rankings.The iShares Micro-Cap ETF IWC is a good proxy for the universe, and an assortment of tech and biotech stocks helped it beat the Morningstar US Small Cap Market Index. Those include Applied Optoelectronics AAOI, a supplier of fiber-optic components to data centers, semiconductor chip material supplier AXT AXTI, and Applied Digital APLD, TeraWulf WULF, and Cipher Digital CIFR, a clutch of former cryptocurrency miners that have morphed into AI data center landlords. Expectations for the commercial prospects of essential tremor and childhood epilepsy treatments also fueled Praxis Precision Medicines’ PRAX high triple-digit trailing-year returns.Many of the hottest micro-cap stocks, however, are also lower on the quality scale. They often rely on one or a few big customers or products and must spend gouts of money to keep growing revenue. In the case of the former crypto miners, they’re changing their entire business models in midflight. It’s fair to call them speculative.Indeed, sorting small-cap funds with big micro-cap stakes by their portfolios’ quality factor exposure—a measure of firm profitability and debt—shows that the fifth of funds with bigger helpings of low-quality stocks have done better and ranked higher in their peer groups than those with relatively better-quality holdings. Other stocks besides tech-flavored ones worked for micro-cap-leaning managers in the recent rally. Semiconductor holdings helped Royce Small-Cap Opportunity ROFIX, which had more than 60% of its assets in micro-caps, but so did some industrial stocks like machinery-maker Mayville Engineering MEC and construction company Orion Group Holdings ORN, and oil- and gas-services provider Tetra Technologies TTI. Some of those stocks, such as Mayville, build or supply materials and services to data centers, so AI buildout tailwinds have filled their sails, too. Yet, there have been more idiosyncratic winners. Royce Small-Cap Special Equity RSEIX, had watchmaker Movado Group MOV, retailer Macy’s M, and cat litter maker Oil-Dri Corporation of America ODC among its top performing and contributing holdings. Diamond Hill Small Cap DHSIX also owned Oil-Dri and has had good experiences with packaged food supplier Mama’s Creations MAMA and medical and scientific tool company Mesa Laboratories MLAB. Both funds had more than two-thirds of their equity assets in Morningstar’s definition of micro-caps. Micro-cap-leaning funds have been in outflows for years, but, on average, they’ve turned slightly positive on average in the last year. Perhaps the micro-cap rally has not escaped everyone’s attention.If you’ve noticed and are considering jumping in, look before you do. The same trends that have propelled the rest of the market have contributed to many micro-cap-heavy funds’ recent results. A lot of the tiny stocks these funds own face the same worries about the sustainability of AI-related spending and valuations as their larger-cap brethren. And if you already own a small-cap fund, you may already have all the micro-cap exposure you need.