The attention-grabbing performance of some of the world’s largest stocks has led to them finally grabbing hold of investors’ wallets. Whether that exposure comes through market-weighted funds or direct ownership, the stock group’s gains have overshadowed about 2,500 other US-listed stocks that do not meet the criteria for inclusion in the S&P 500.
But this year, a dramatic and structural shift in the markets has favored smaller, more nimble firms whose shares have seen gains that have significantly outperformed their larger peers.
How Small Shares Have Fared This Year
Small caps typically have a market capitalization that falls between $250 million and $2 billion. In context, NVIDIA NASDAQ: NVDA-the world’s largest publicly traded company-currently sports a market cap of around $5.41 a trillion.
But after years of double-digit gains for the S&P 500, 2026 has been a downer story for companies that don’t qualify for the index.
That put a spotlight on smaller companies, which are often tracked by the Russell 2000 Index. The index represents the smallest 2,000 companies in the broader Russell 3000, a market-weighted benchmark designed to measure the performance of the US equity market. So far this year, Russell 2000 voters have contributed to gains of more than 13%. Meanwhile, the S&P 500’s year-to-date (YTD) gain stands at just over 8%.
One reason why small caps have outperformed the S&P 500 so far in 2026 is that investors started the year by flipping on Big Tech names. The massive exodus was fueled by fears of a massively weak environment, runaway proportions, and the dangers of concentration. Those stocks—including other members of the Magnificent Seven—have outperformed recently. Still, those factors remain important, as do some that have acted as headwinds for small stocks.
The valuation gap between small companies that trade at deep discounts compared to their S&P 500 peers has been a factor. That spread sparked a wave of buying as institutional investors looked to take advantage of rising tech prices and diversify into low-value and growth options in the Russell 2000.
Another big reason why small caps have fared better than the big market and mega-cap is that small companies are often prevented from geopolitical risks and the collapse of tax policy that has caused uncertainty in the major indices.
US-owned small caps tend to conduct most of their business domestically. That has been a buffer against global supply chain disruptions that have hit multinationals that are more sensitive to international trade policies.
For investors looking to add small-cap exposure while protecting the underperformance of the S&P 500, the following two exchange-traded funds (ETFs) have delivered strong year-to-date track records and still have some ground on their backs.
Largest Small-Cap Zeroes Growth ETF
iShares Core S&P Small-Cap ETF today
iShares Core S&P Small-Cap ETF
As of 12:58 PM Eastern
- 52 week interval
- $102.57
▼
$139.49
- Dividend Yield
- 1.18%
- Assets Under Administration
- $101.50 billion
With nearly $100 billion in assets under management (AUM), the iShares Core S&P Small-Cap ETF NYSEARCA: IJR—formerly the iShares S&P SmallCap 600 Index Fund—the world’s largest small cap fund.
The ETF focuses on growth stocks and has about 650 companies, with a focus on financials, making up about 22% of the fund by industry exposure. Consumer discretionary, industrials, and technology together make up about 43%, while healthcare makes up the top five sectors by weight, with a share of more than 10%.
IJR has outperformed this year, which may be partly due to its more than 10% industry exposure to both semiconductors and semiconductor devices, as well as oil, gas, and petroleum. So far this year, the ETF has gained about 13%.
After long-term institutional purchases in Q4 2025, the fund saw a reversal in early 2026. During Q1, inflows of $849 million exceeded outflows of $285 million. With institutional ownership of nearly 67% and current short interest of just 0.96%, smart money shows that it’s working for the iShares Core S&P Small-Cap ETF heading into the second quarter of the year.
This Vanguard Fund Holds a Large Portfolio of Small Caps
Vanguard Small-Cap ETF today
Vanguard Small-Cap ETF
As of 12:58 PM Eastern
- 52 week interval
- $221.85
▼
$291.99
- Dividend Yield
- 1.23%
- Assets Under Administration
- $76.37 billion
Launched in January 2004, the Vanguard Small-Cap ETF NYSEARCA: VB tracks the CRSP US Small Cap Index, which includes 2% to 15% of the total investable space.
With around 75 billion in AUM, it competes with IJR in analytics.
And while the ETF’s YTD gain of around 10% isn’t as impressive as IJR’s, it’s enough to outperform the S&P 500 this year.
Where VB stands out is its broad-based exposure. With 1,315 stocks, more than 18% of the fund’s portfolio is allocated to industrials, about 17% to financials, and 15% to technology. Consumer discretionary and health care round out the top five sectors at 11.2% and 10.6%, respectively.
Despite its focus on small caps, it has large-time names. Compatibility NYSE: COHRfor example, is an industry leader in laser manufacturing and photonics-based solutions. The stock, which plays a key role in AI infrastructure, has produced a YTD gain of over 84%.
The Vanguard Small-Cap ETF has seen aggressive institutional buying this past year, with inflows of more than $28 billion easily outpacing outflows of less than $5 billion. The bulk of that buying came in Q4 2025, when $24 billion was deposited into the fund against net sales of $1.3 billion. The current short interest is zero at 0.16% of the float.
Before you consider the iShares Core S&P Small-Cap ETF, you’ll want to hear this.
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