Small-cap stocks are experiencing one of their strongest stretches in decades. After spending years overshadowed by large and mega-cap growth stocks, smaller companies are now outperforming the S&P 500 by the widest margin since 2003.
Year-to-date, the Russell 2000 is up approximately 20%, nearly doubling the returns of the S&P 500 during the same period. For investors looking to participate in this rally, the iShares Russell 2000 ETF (IWM), iShares Core S&P Small-Cap ETF (IJR), and Vanguard Small-Cap Index Fund (VB) each provide small-cap exposure, while tracking different indexes with distinct investment approaches.
| ETF | Index | # of Holdings | Expense Ratio |
| IWM | Russell 2000 | ~2,000 | 0.19% |
| IJR | S&P SmallCap 600 | ~600 | 0.06% |
| VB | CRSP U.S. Small Cap | ~1,300 | 0.03% |
Why are Small-Caps Rallying?
As investors look beyond the handful of mega-cap technology companies that have driven much of the market’s gains in recent years, small-cap stocks have continued to gain momentum.
With the U.S. economy remaining resilient despite heightened global uncertainty, confidence in smaller, domestically focused companies has improved.
At the same time, concerns that AI-related stocks have become increasingly expensive have prompted a growing number of investors to rotate into more attractively valued segments of the market.
In the current environment, many investors find that the valuation buffer between large-cap and small-cap stocks remains attractive. The State Street SPDR S&P 500 ETF (SPY), one of the most widely used benchmarks for the broad market, currently trades at a price-to-earnings and price-to-book of 21.0x and 4.61x, respectively. In comparison, the iShares Russell 2000 ETF (IWM) currently trades at a price-to-earnings and price-to-book of 15.78x and 1.99x.
This valuation gap between small and large-cap companies remains significant despite the recent gains.
| Valuation Metric | iShares Russell 2000 ETF (IWM) | The State Street SPDR S&P 500 ETF Trust (SPY) |
| Price-to-Earnings | 15.78x | 21.01x |
| Price-to-Book | 1.99x | 4.61x |
| Price-to-Sales | 1.20x | 3.28x |
| Price-to-Cash Flow | 7.87x | 15.14x |
While lower valuations do not guarantee stronger returns, they do provide investors with a wider margin of safety and greater upside potential if earnings continue to improve. The following funds remain some of the best options for investors to gain small-cap exposure.
iShares Russell 2000 ETF (IWM)
With $82.70 billion in assets under management, the iShares Russell 2000 ETF (IWM) is one of the most widely recognized small-cap ETFs, making it a natural starting point for investors looking to participate in the current market rally.
The fund tracks the Russell 2000 Index, which includes approximately 2,000 U.S. small-cap companies spanning a broad range of industries. Due to its broad diversification and high daily trading volume, IWM is considered by many to be the gold standard for small-cap investing.
With an expense ratio of just 0.19%, the fund continues to be a favorite among long-term investors and traders alike. The fund provides access to both value and growth potential, with a current annualized alpha of 2.10% and historical upside capture of 126.03%.
iShares Core S&P Small-Cap ETF (IJR)
The iShares Core S&P Small-Cap ETF (IJR) offers a more selective approach by tracking the S&P SmallCap 600 Index. Unlike the Russell 2000, companies in the S&P 600 must meet profitability and liquidity requirements before being added to the index. As a result, the index tends to have a greater tilt towards quality than the Russell 2000.
Historically, this screening process has contributed to stronger long-term returns. This is supported in the current data, with YTD total returns for IJR slightly outpacing those of IWM.
With $109.33 billion in assets under management, and an expense ratio of 0.06%, the fund also provides exposure to value and growth potential with a current annualized alpha of 3.64% and historical upside capture of 121.08%.
Vanguard Small-Cap Index Fund (VB)
The Vanguard Small-Cap Index Fund (VB) is yet another small-cap ETF investors should keep an eye on. The fund tracks the CRSP U.S. Small Cap Index, providing exposure to more than 1,300 U.S. companies. Unlike traditional small-cap indexes, the CRSP methodology uses “buffer rules” that reduce unnecessary trading and turnover when companies move between market-cap segments. As a result, VB offers a broadly diversified portfolio that includes the upper end of the small-cap universe and some lower mid-cap companies. This makes the fund predominantly a small-cap ETF, with some smid-cap (small and mid-cap) exposure.
With YTD returns of approximately 15%, VB has slightly underperformed both IJR and IWM, while still outperforming the S&P 500.
With $81.54 billion in assets under management, the fund has an ultra-low expense ratio of 0.03%. VB has an annualized alpha of 0.78% and historical upside capture of 118.46%.
Final Verdict
Small-cap stocks have emerged as one of the market’s strongest-performing areas in 2026, and investors have more than one way to gain exposure to the rally.
Whether you prefer the broad reach of IWM, the quality-focused approach of IJR, or the diversified methodology of VB, each ETF offers a path to participate in the present small-cap rally. As market participation continues to broaden, these funds are all well-positioned to benefit if investor interest in small-cap diversification remains strong.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks