As Small-Cap Outperformance Continues, These 2 ETFs Provide Exposure

Summary

The eye-catching performance of some of the world’s largest stocks has led to them becoming fixtures in investors’ portfolios. Whether that exposure comes via market-cap-weighted funds or direct ownership, the stocks' collective gains have overshadowed the roughly 2,500 other U.S.-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 stocks have generated gains that have markedly outpaced their larger peers. How Small-Cap Stocks Have Managed to Outperform This YearSmall caps generally have market capitalizations that fall between $250 million and $2 billion. For context, NVIDIA NASDAQ: NVDA—the largest publicly traded company on the planet—currently sports a market cap of around $5.41 trillion. But after years of double-digit gains for the S&P 500, 2026 has been an underdog story for companies that don’t qualify for that index. That has put a spotlight on small-cap companies, which are commonly tracked through the Russell 2000 Index. The index represents the smallest 2,000 companies in the broader Russell 3000, a market-cap-weighted benchmark designed to measure the performance of the U.S. equity market. So far this year, the Russell 2000’s constituents have contributed to a gain 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 began the year by rotating out of Big Tech names. Massive outflows were fueled by fears of a weakening macro environment, runaway valuations, and concentration risks. Those stocks—including some members of the Magnificent Seven—have performed better of late. Nonetheless, those factors remain relevant, as do others that have served as tailwinds for small-cap stocks. A valuation gap between smaller companies trading at massively discounted prices compared to their S&P 500 counterparts has be...