Small-cap stocks represent publicly traded companies with relatively smaller market capitalizations, typically ranging from a few hundred million dollars to a few billion. Historically, this segment of the market has offered higher long-term growth potential than large-cap stocks, though with greater volatility along the way.
According to S&P Dow Jones Indices, small-cap stocks have delivered periods of outperformance relative to large caps during economic recoveries, when smaller companies tend to benefit more from expanding credit conditions and domestic growth.
For investors, small-cap ETFs offer an efficient way to gain diversified exposure without relying on individual stock selection.
At a Glance: Best Small-Cap ETFs
ETF Ticker Index Tracked Risk Profile Why It Stands Out iShares Russell 2000 ETF IWM Russell 2000 High Most widely used small-cap ETF Vanguard Small-Cap ETF VB CRSP U.S. Small Cap High Low cost and broad diversification Schwab U.S. Small-Cap ETF SCHA Dow Jones U.S. Small-Cap High Competitive expense ratio SPDR S&P SmallCap 600 ETF Trust SLY S&P SmallCap 600 High Emphasizes profitability screens iShares Core S&P Small-Cap ETF IJR S&P SmallCap 600 High Low-cost access to profitable small caps Expense ratios and index methodologies are based on current fund prospectuses and index provider disclosures.
What Makes Small-Cap ETFs Different?
Small-cap ETFs focus on companies earlier in their growth cycle. According to the U.S. Securities and Exchange Commission, smaller companies often experience larger price swings due to limited operating history, narrower profit margins and greater sensitivity to economic changes.
Because of this, small-cap ETFs are typically used as growth-oriented or satellite allocations, rather than core portfolio holdings.
Best Small-Cap ETFs To Consider
iShares Russell 2000 ETF (IWM)
IWM tracks the Russell 2000 Index, which includes approximately 2,000 U.S. small-cap stocks. According to FTSE Russell, the index represents about 8% of the total U.S. equity market by capitalization. IWM is highly liquid, making it popular among both long-term investors and traders.
Vanguard Small-Cap ETF (VB)
VB tracks the CRSP U.S. Small Cap Index and carries a low expense ratio, according to Vanguard’s official fund profile. The ETF offers broad exposure across sectors, reducing reliance on any single industry. Its structure makes it well-suited for long-term investors seeking cost efficiency.
Schwab U.S. Small-Cap ETF (SCHA)
SCHA follows the Dow Jones U.S. Small-Cap Total Stock Market Index. According to Charles Schwab Asset Management, the fund is designed to capture a wide range of small-cap companies while maintaining low operating costs. It’s often favored by investors already using Schwab brokerage accounts.
SPDR S&P SmallCap 600 ETF Trust (SLY)
SLY tracks the S&P SmallCap 600 Index, which requires constituent companies to meet profitability criteria, according to S&P Dow Jones Indices. This screen can reduce exposure to unprofitable firms, potentially lowering risk compared to broader small-cap indexes.
iShares Core S&P Small-Cap ETF (IJR)
IJR also tracks the S&P SmallCap 600 Index but with a lower expense ratio, according to BlackRock’s fund disclosures. It’s often used as a long-term holding for investors who want small-cap exposure with a profitability tilt.
How Small-Cap ETFs Fit Into a Portfolio
Research from Fama and French and data published by the Federal Reserve Bank of St. Louis show that small-cap stocks have historically carried a “size premium,” meaning higher long-term returns accompanied by higher volatility.
Because of this trade-off, financial professionals often recommend keeping small-cap exposure moderate and diversified.
Risks To Keep in Mind
Small-cap ETFs are more sensitive to economic slowdowns, rising interest rates and tighter credit conditions. They may underperform large-cap stocks during market stress.
According to the SEC, investors should be prepared for larger drawdowns and longer recovery periods when investing in smaller companies.
Final Take to GO
Small-cap ETFs can enhance long-term growth potential and diversification, but they aren’t low-risk investments. Broad, low-cost funds like VB, IWM or IJR offer diversified exposure, while S&P SmallCap 600-based ETFs emphasize profitability.
The best choice depends on your risk tolerance, time horizon and overall portfolio strategy.
Best Small-Cap ETFs FAQ
- Are small-cap ETFs riskier than large-cap ETFs?
- Yes, small-cap ETFs typically experience greater volatility due to the size and financial stability of the underlying companies.
- Do small-cap ETFs outperform over time?
- Small-cap stocks have historically delivered higher long-term returns, but with larger short-term swings.
- What is the difference between Russell 2000 and S&P SmallCap 600?
- The S&P SmallCap 600 applies profitability screens, while the Russell 2000 includes a broader range of companies.
- How much small-cap exposure should a portfolio have?
- Many investors limit small-cap allocations to a modest portion of a diversified portfolio to balance risk and growth.
- Are small-cap ETFs good for beginners?
- They can be appropriate as part of a diversified strategy, but beginners should be prepared for higher volatility.
Data is accurate as of Jan. 20, 2026, and is subject to change.
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