The Best ETFs to Ride the Small-Cap Stock Rally

Small-cap stocks are on a tear: The Morningstar US Small Cap Index is outperforming both the Morningstar US Large Cap Index and the broad-based Morningstar US Market Index by a healthy margin over the past few months.

But can the small-cap stock revival persist in 2026? Morningstar Chief US Market Strategist Dave Sekera thinks so:

“According to our valuations, we think they have further to run. Looking forward, our economics team forecasts at least two more cuts to the fed-funds rate this year and long-term interest rates to fall further. Plus, the AI buildout boom has spurred faster-than-expected economic growth. Historically, small-cap stocks perform best when the Fed is easing monetary policy, long-term interest rates are declining, and the rate of economic growth is reaccelerating.”

Investors who’d like to tilt their portfolios toward small-cap stocks (or those who may simply find their portfolios light on smaller names) but don’t want to pick individual stocks have several top exchange-traded funds to choose from. To participate in the small-cap stock revival, we suggest investors favor ETFs that hold stocks with both growth and value characteristics; that way, you’re getting a piece of the action no matter which style leads.

The 9 Best ETFs for the Small-Cap Stock Rally in 2026

To find the best ETFs to buy to participate in the small-cap stock revival, we screened for those ETFs earning a Morningstar Medalist Rating of Silver or Gold with 100% analyst coverage. All the ETFs on the list fall into the small-blend Morningstar Category and have at least $100 million in assets. Data is as of Jan. 26.

1. Dimensional US Small Cap ETF DFAS
2. Invesco RAFI US 1500 Small-Mid ETF PRFZ
3. Schwab Fundamental US Small Company ETF FNDA
4. Schwab US Small-Cap ETF SCHA
5. State Street SPDR Portfolio S&P 600 Small Cap ETF SPSM
6. Vanguard S&P Small-Cap 600 ETF VIOO
7. Vanguard Small Cap ETF VB
8. iShares Core S&P Small-Cap ETF IJR
9. iShares ESG Aware MSCI USA Small-Cap ETF ESML

Even though all the ETFs on our list fall into the same category, they may practice different strategies and therefore behave differently from each other. Investors need to do some homework to understand exactly what a particular fund invests in before buying.

Here’s a quick look at each of the best ETFs for the small-cap stock rally, including commentary from the analyst who covers the ETF. Be sure to review a fund’s complete report for more details.

Dimensional US Small Cap ETF

• Index Fund: No
• Morningstar Medalist Rating: Gold
• Prospectus Net Expense Ratio: 0.27%

DFA US Small Cap and Dimensional US Small Company use a quantitative strategy that provides diversified access to profitable small-cap US stocks. In what can be a risky market segment, this approach should give investors a better shake than most.

The strategy targets the smallest 10% of US equities that pass its investability criteria and additional screens. REITs, recent IPOs, and stocks with market caps of less than USD 10 million are excluded from the opportunity set. Unprofitable companies and those with high asset growth are also removed because DFA’s research shows these traits detract from stock performance. This adds a slight quality tilt to its market-cap-weighted portfolio.

Weighting holdings by market cap is an efficient approach that harnesses the market’s consensus opinion of each stock’s relative value. Stocks that grow in size take up a larger share of the portfolio, while smaller companies that may be struggling take on a less important role. Market-cap weighting also helps rein in transaction costs and promotes diversification.

This strategy further manages these costs by giving traders some flexibility. They have the freedom to choose which stocks to trade from an eligible pool and can spread those trades over multiple days. This ensures the traders prioritize names that are less expensive to transact for the funds.

The strategy operates on the smaller end of the small-cap market. Its average market cap was just under USD 3.7 billion as of April 2025, which is smaller than most Morningstar Category peers but larger than this strategy’s Russell 2000 Index prospectus benchmark. Small-cap stocks tend to be more volatile than their larger peers. However, the funds’ focus on profitable stocks should minimize this effect.

While the smaller names that constitute this portfolio can be volatile, the strategy’s broad reach ensures that one stock’s misfortune should not derail the entire portfolio. It stashes just a few percentage points of its assets in its top 10 holdings. That breadth helped DFA US Small Cap return 7.4% annualized in the 10 years through April 2025. Ireland-domiciled Dimensional US Small Company returned slightly less owing to its higher fee.

Read Morningstar’s full report on the Dimensional US Small Cap ETF.

Invesco RAFI US 1500 Small-Mid ETF

• Index Fund: Yes
• Morningstar Medalist Rating: Silver
• Prospectus Net Expense Ratio: 0.34%

Invesco RAFI US 1500 Small-Mid ETF offers investors a contrarian strategy that breaks the connection between price and weight.

It tracks the RAFI US 1500 Small-Mid Index, which uses fundamental measures to determine the value and size of each holding. The strategy runs the gamut for small-cap stocks and selectively reaches into mid-cap territory. As fundamentals shift over time, the fund sells out of stocks whose price has risen above their fundamental value and doubles down on laggards. This creates a buy low, sell high effect that drives excellent returns when prices and valuations return to historical levels.

Portfolio holdings are decided on annually, but the rebalance is spread across four quarters to limit trading costs and market impact. Turnover within the portfolio is kept low by using five- to six-year averages of the fundamental measures rather than the most recent news. While this limits turnover, it can also make the strategy slow to react to struggling companies.

Separating price from value can also have a negative impact on the strategy. Stock prices incorporate market sentiment and information not reflected in a company’s fundamentals. Ignoring price forces the strategy to rely on historical values and not consider future expectations.

Despite these drawbacks, the strategy’s contrarian style has stood strong since its 2006 inception. It outperformed its Morningstar Category benchmark, the Morningstar US Small Cap Index, by over 1 percentage point annualized from 2006 through September 2025.

The fund does best in the recovery periods following economic downturns. It returned over 56% in 2009 and beat the Morningstar US Small Cap Index by 12% in the year following the coronavirus-driven drawdown in 2020. Although the fund’s contrarian approach requires patience, the periods when prices and valuations revert to their historic averages make the wait well worth it.

Read Morningstar’s full report on the Invesco RAFI US 1500 Small-Mid ETF.

Schwab Fundamental US Small Company ETF

• Index Fund: Yes
• Morningstar Medalist Rating: Silver
• Prospectus Net Expense Ratio: 0.25%

Schwab Fundamental US Small Company invests in fundamentally sound yet unpopular companies. It should benefit if and when their prices return to normal levels.

The fund tracks the RAFI Fundamental High Liquidity US Small Index, which uses fundamental metrics to identify and weight holdings. US stocks that are sufficiently easy to trade and meet some fundamental-value thresholds are eligible for inclusion. The index calculates fundamental value as an equal-weighted measure of sales (adjusted for leverage), retained operating cash flow, and dividends plus buybacks. These metrics are calculated using a five-year look-back period, which can help avoid taking cues from short-term hiccups in firm fundamentals and reduce unnecessary turnover.

When the fund rebalances, it increases exposure to stocks that have become cheaper relative to these metrics and trims those that have become more expensive. This approach has some advantages. Steering the portfolio away from the most expensive stocks can aid performance when valuations revert to historic norms. But there is a trade-off: Ignoring prices means the fund can overweight those with declining fundamentals, adding to its risk.

The index calculates each stock’s fundamental weighting annually in March, but it rebalances a different fourth of its portfolio each quarter. Breaking up the rebalancing trades helps reduce the risk of poorly timed rebalances and the market-impact costs of trading.

The fund has a modest value orientation. Adding to stocks that have become cheap relative to their fundamentals tends to push the portfolio toward the value end of the Morningstar Style Box. It also means the portfolio generally leans away from larger small-cap stocks, conferring a modest small-size tilt.

These leans mean the fund does well when value stocks and smaller stocks do well. For example, the fund did well against its Morningstar Category index in 2021 when small-cap value stocks outperformed, but it lagged in 2020 when growth stocks outperformed. In the long term, these leans have produced slightly higher volatility than the Morningstar US Small Cap index, but its preference for fundamentally sound businesses does help control drawdowns.

Read Morningstar’s full report on the Schwab Fundamental US Small Company ETF.

Schwab US Small-Cap ETF

• Index Fund: Yes
• Morningstar Medalist Rating: Silver
• Prospectus Net Expense Ratio: 0.04%

Schwab US Small-Cap ETF captures the US small-cap market for a low fee. Its diversified portfolio mitigates stock-specific risk, and a turnover-conscious approach minimizes trading costs that can plague other small-cap index funds.

The fund tracks the Dow Jones US Small-Cap Total Stock Market Index, an expansive portfolio capturing roughly 1,700 small- and micro-cap US stocks. The index requires that its constituents are sufficiently easy to trade to ensure it’s easy to track. These measures help minimize transaction costs that can run high in the relatively illiquid small-cap market.

The portfolio is market-cap-weighted, which is an efficient approach because it harnesses the market’s consensus opinion of each stock’s relative value. Stocks that grow in size take up a larger share of the portfolio, while smaller companies that may be struggling take on a less important role. Market-cap weighting also helps rein in turnover and promotes diversification. Annual turnover has averaged just 12% since the fund’s 2009 inception, a fraction of its typical peer’s 61%. Its top 10 holdings account for just a few percentage points of the portfolio, minimizing stock-specific risk.

The fund’s sector allocations and style orientation usually mimic the Morningstar Category average, which helps translate the fund’s low fee into a distinct performance advantage. As of April 2025, no sector weightings deviated from the category average by more than 2 percentage points.

The fund features smaller companies than many of its peers, which may contribute to excess volatility in the already risky small-cap arena. Historically, the extra risk of small caps has translated into better long-term performance than their larger counterparts. This fund’s low fee and turnover-conscious approach help it capitalize on the performance potential of small-cap stocks. For the 10 years through April 2025, it outpaced the category average by 42 basis points annualized.

Read Morningstar’s full report on the Schwab US Small-Cap ETF.

State Street SPDR Portfolio S&P 600 Small Cap ETF

• Index Fund: Yes
• Morningstar Medalist Rating: Gold
• Prospectus Net Expense Ratio: 0.03%

The fund uses representative sampling to construct a portfolio that mimics the performance of the S&P SmallCap 600 Index and minimizes investors’ tax bills. Despite a sampling approach, the portfolio rarely excludes more than a handful of stocks. And owing to current market conditions, it shares all holdings with the index as of March 2025.

Through sampling the S&P SmallCap 600 Index, the fund captures the small-cap segment of the total investable US equity market. An index committee determines the 600 constituents from a universe of US-domiciled stocks that pass its investability criteria. These criteria include a market cap between USD 1.1 billion and USD 7.4 billion, minimum liquidity requirements, and positive GAAP earnings for the past 12 months and in the most recent quarter. The profitability requirement helps shield it from less stable companies, especially among its smallest constituents. IPOs are eligible for inclusion only after 12 months of trading. This helps to ensure that these firms are financially viable and allows time for the market to incorporate a broader swath of market participants’ views into their share prices.

The index does not reconstitute on a regular cadence like competitor indexes, instead making changes as the committee sees fit. Existing constituents are removed only if they continually and substantially violate the index’s inclusion criteria, as the index committee allows temporary deviations. This approach allows for more flexibility around reconstitution, thus reducing unnecessary turnover. Historical turnover for the index hovers around 16%, better than most active strategies and consistent with many index fund peers.

The committee will step in when a stock far exceeds the upper market-cap limit, preventing the portfolio from drifting too far from its small-cap moniker. Some small-cap index funds may be required to hold stocks long after they’ve left small-cap territory because of a ridged rebalance schedule. The S&P SmallCap 600 Index can remove them once they get far too large, ensuring the portfolio remains representative of the market it tracks. As a result, some competitor indexes hold stocks with market caps larger than USD 20 billion.

Small companies tend to be more volatile than their larger counterparts but may offer greater upside potential. While their businesses may not yet be mature and stable, the growth potential of promising small-cap stocks can lift the entire segment. Diversifying across a broad selection of small stocks is sensible as it spreads risk yet allows a portfolio to benefit from the winners.

The portfolio holds every one of the 600 constituents in its benchmark index, minimizing stock-specific risk. No one position collects more than 1% of the portfolio, and its top 10 holdings make up just 6% of the portfolio.

Stocks from the industrials and financials sectors claim most of the portfolio, together claiming about 34%, as of March 2025. Utilities and communications stocks barely make a dent, together representing less than 5% of the portfolio. While indicative of the small-cap US stock universe, these sector allocations represent a source of concentration risk that may not be rewarded.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a passively managed vehicle that tracks a particular index, Morningstar associates the Process Pillar rating assigned to that vehicle with the index concerned. Morningstar then maps the Process Pillar associated with a given index to any other uncovered passive strategies that track the same index. This ensures that the analyst’s view is leveraged whenever available and promotes consistency when analyzing passive vehicles associated with a given index.

Read Morningstar’s full report on the State Street SPDR Portfolio S&P 600 Small Cap ETF.

Vanguard S&P Small-Cap 600 ETF

• Index Fund: Yes
• Morningstar Medalist Rating: Silver
• Prospectus Net Expense Ratio: 0.07%

Vanguard S&P Small-Cap 600 Index’s low fee, broad diversification, and profitability bias make it hard to beat.

This fund tracks the S&P SmallCap 600 Index, which collects the smallest 600 stocks in the S&P 1500 Composite Index. Each constituent must meet initial market cap, liquidity, and profitability criteria to be eligible. The final portfolio is weighted by each stock’s float-adjusted market capitalization.

Market-cap weighting is an efficient way to allocate the portfolio because it harnesses the market’s consensus opinion of each stock’s relative value. Faster-growing companies take up a larger share of the portfolio, while smaller companies that may be struggling take on a less important role. This helps rein in turnover and associated trading costs.

The S&P SmallCap 600 Index operates on the smaller end of the small-cap market. Its average market cap was just over USD 2.8 billion as of March 2025, which is smaller than most index competitors. Small-cap stocks tend to be more volatile than their larger peers. However, the fund’s parent index, the S&P 1500 Composite, includes only profitable names. This removes the lowest-quality small-cap stocks and contains volatility.

While the smaller names that constitute this portfolio can be volatile, the strategy’s broad reach ensures that one stock’s misfortune should not derail the entire portfolio. It stashes just 5% of assets in its top 10 holdings. That breadth helped the exchange-traded fund share class return 7.5% annualized in the 10 years through March 2025, about 1.4 percentage points better than the category norm.

Read Morningstar’s full report on the Vanguard S&P Small-Cap 600 ETF.

Vanguard Small Cap ETF

• Index Fund: Yes
• Morningstar Medalist Rating: Gold
• Prospectus Net Expense Ratio: 0.05%

Vanguard Small Cap Index offers a well-diversified, low-turnover portfolio that is representative of the US small-cap market. These features coupled with a best-in-class fee make it one of the most compelling strategies in the small-blend Morningstar Category.

The fund tracks the CRSP US Small Cap Index, which sweeps in all small-cap US stocks that meet its market-cap criteria and are sufficiently easy to trade. These requirements help ensure the index represents its opportunity set and is easy to track. CRSP also takes measures during rebalances to make it more difficult for stocks to enter or exit the portfolio. This reduces turnover and the associated transaction costs, which can run high for difficult-to-trade small-cap stocks.

The fund weights its holdings by market cap, an efficient approach that harnesses the market’s consensus opinion of each stock’s relative value. Stocks that grow in size take up a larger share of the portfolio, while smaller companies that may be struggling take on a less important role. Market-cap weighting also helps rein in turnover and promotes diversification. Annual turnover has averaged 15% for the 10 years through 2024, or a fraction of the small-blend average of 59%. The top 10 holdings account for just a few percentage points of the portfolio, minimizing stock-specific risk.

The fund’s sector allocations and style orientation usually mimic the category average, which helps translate the fund’s low fee into a distinct performance advantage. Only the fund’s financial-services sector allocation deviated from the category norm by more than 2 percentage points at the end of March 2025. Stocks from that sector receive about 4% less weight than the category average.

The small-cap market tends to be quite volatile, but that volatility can breed periods of exceptional performance, such as after market crashes. Small caps tend to fall faster than their larger peers but rebound faster. This fund’s low fee and turnover-conscious approach can help it capitalize on these periods of outperformance while controlling for unnecessary risk. That has translated into a strong long-term track record. For the 10 years through April 2025, the exchange-traded share class outpaced the category average by 1.7 percentage points annualized.

Read Morningstar’s full report on the Vanguard Small Cap ETF.

iShares Core S&P Small-Cap ETF

• Index Fund: Yes
• Morningstar Medalist Rating: Silver
• Prospectus Net Expense Ratio: 0.06%

IShares Core S&P Small-Cap ETF and iShares S&P SmallCap 600 ETF’s low fee, broad diversification, and profitability bias make them hard to beat.

These funds track the S&P SmallCap 600 Index, which collects the smallest 600 stocks in the S&P 1500 Composite Index. Each constituent must meet initial market cap, liquidity, and profitability criteria to be eligible. The final portfolio is weighted by each stock’s float-adjusted market capitalization.

Market-cap weighting is an efficient way to allocate the portfolio because it harnesses the market’s consensus opinion of each stock’s relative value. Faster-growing companies take up a larger share of the portfolio, while smaller companies that may be struggling take on a less important role. This helps rein in turnover and associated trading costs.

The S&P SmallCap 600 Index operates on the smaller end of the small-cap market. Its average market cap was USD 2.8 billion as of March 2025, which is smaller than most index competitors. Small-cap stocks tend to be more volatile than their larger peers. However, the fund’s parent index, the S&P 1500 Composite, includes only profitable names. This removes the lowest-quality small-cap stocks and contains volatility.

While the smaller names that constitute this portfolio can be volatile, the strategy’s broad reach ensures that one stock’s misfortune should not derail the entire portfolio. It stashes just 5% of assets in its top 10 holdings. That breadth helped the S&P SmallCap 600 Index return 7.5% annualized in the 10 years through March 2025, about 1.6 percentage points better than the Russell 2000 Index, a common small-cap benchmark. Each fund returned slightly less, owing to its respective fee.

Read Morningstar’s full report on the iShares Core S&P Small-Cap ETF.

iShares ESG Aware MSCI USA Small-Cap ETF

• Index Fund: Yes
• Morningstar Medalist Rating: Silver
• Prospectus Net Expense Ratio: 0.17%

IShares ESG Aware MSCI USA Small-Cap ETF balances its mild environmental, social, and governance tilts with faithful representation of the small-cap market, though issues inherent to indexing small-caps still loom.

The fund’s benchmark, the MSCI USA Small Cap Extended ESG Focus Index, captures small-cap stocks with good ESG practices. The index filters out companies with controversial product lines or those currently involved in severe controversies. An optimizer determines the weightings of the remaining stocks, systematically tilting toward firms with better ESG characteristics while aiming for a 0.5% tracking error versus its parent index, the MSCI USA Small-Cap Index. The fund’s actual tracking error has hovered around 0.8% annually.

This tight constraint causes the fund to look and behave very similarly to its parent index and average small-blend Morningstar Category peers. It rarely makes any notable stock bets and keeps its stock weights close to their positions in the market-cap-weighted parent index. So, the fund relies on the market’s collective wisdom on each stock’s value to determine its position size.

But lower trading volume among smaller stocks can dull the accuracy of market prices as a value signal. Market-cap weighting may load the fund up on overvalued stocks and miss out on undervalued ones. Still, the fund’s 900-holding portfolio is broad enough to keep such risk at bay. It has historically parked less than 5% of its assets in its top 10 positions.

Other constraints, including turnover and sector weighting limits, further tame risk. The fund’s sector makeup closely mirrors those of the category average and category index. Industrial and financial firms account for a third of its portfolio, reflecting their prevalence in the small-cap stock market. The fund also shares many top holdings with the parent index, which should keep its returns similar to those of the benchmark.

The resulting portfolio is broad, diversified, and inexpensive. It has consistently outpaced the category average since its 2018 inception. Similar to the MSCI USA Small-Cap Index, the fund captured 103% of the category average’s upside and 102% of its downside between its inception and April 2025. Its minor ESG tilts have not boosted or detracted from results so far.

Read Morningstar’s full report on the iShares ESG Aware MSCI USA Small-Cap ETF.

What Are Small-Blend ETFs?

Small-blend portfolios favor US firms at the smaller end of the market-capitalization range. Some aim to own an array of value and growth stocks while others employ a discipline that leads to holdings with valuations and growth rates close to the small-cap averages. Stocks in the bottom 10% of the capitalization of the US equity market are defined as small-cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate.

How to Find More of the Best ETFs to Buy for the Long Term

Given their high Morningstar Medalist Ratings, we expect the top-rated ETFs on our list to outperform over a full market cycle. That being said, investors may want to expand their search beyond this list, using parameters that matter to them. Here are some additional ways to find more ETFs and mutual funds:

• Use the Morningstar Investor screener to create your own list of ETFs to investigate further.
• Explore Morningstar Medalist funds on our Best Investments page.
• Read our latest ETF insights and analysis on Morningstar.com.