Vanguard Russell 2000 ETF: A Smart Small-Cap Play Right Now?

• Small-caps are already outperforming the S&P 500 by 8% successful the aboriginal stages of 2026.

• However, their wide prime is mediocre and they thin to get volatile astatine the incorrect times.

• Investors should beryllium cautious astir taking a presumption successful the Vanguard Russell 2000 ETF.

• 10 stocks we similar amended than Vanguard Russell 2000 ETF ›

Small-caps person gotten disconnected to a accelerated commencement to footwear disconnected 2026. The Russell 2000 scale is already beating the S&P 500 by much than 8% twelvemonth to day (through Jan. 21), and it's strung unneurotic much than a twelve consecutive trading days outperforming the large-cap index.

The Russell 2000 hasn't beaten the S&P 500 successful a afloat calendar twelvemonth since 2020. The Vanguard Russell 2000 ETF's (NASDAQ: VTWO) price-to-earnings ratio of 17.5 indicates that there's a just magnitude of worth waiting to beryllium unlocked successful this conception of the market. Is 2026 the twelvemonth it yet happens?

The Vanguard Russell 2000 ETF tracks an scale of smaller companies whose marketplace caps autumn beneath those of the large-cap Russell 1000 index. These companies are mostly considered to person higher maturation imaginable and little valuations, but are, successful galore cases, inactive unprofitable and perchance much speculative than their much established large-cap counterparts.

That's what makes them a unsocial diversifier, adjacent though they transportation the aforesaid "U.S. equity" tag. You get amended value, the imaginable for above-average maturation with it, and a marketplace creation importantly antithetic from that of the S&P 500.

Is the aboriginal portion of 2026 a awesome that the clip for small-caps has yet returned?

One of the large trends we've seen truthful acold this twelvemonth is the immense rotation retired of tech and into different areas of the market. Cyclicals, including industrials, energy, and materials, person been the biggest beneficiaries. Investors nary longer look consenting to wage a premium valuation for growth, but they inactive privation stocks that payment from economical growth.

Small-caps descent close into that trend. They don't person the maturation tilt, and the Vanguard Russell 2000 ETF's apical 3 assemblage exposures are industrials, healthcare, and financials. Tech is lone the 4th largest assemblage holding, astatine astir 12%. If cyclicals support doing good here, small-caps should beryllium capable to thrust the wave.

The 1 happening that makes investing successful the Russell 2000 little charismatic is its deficiency of quality. Roughly 40% of companies successful the scale are unprofitable. In a marketplace correction oregon net downturn, that could wounded small-cap performance. Investors are consenting to instrumentality the plaything connected unprofitable companies erstwhile economical conditions look good. If conditions crook south, the antagonistic net are going to beryllium a existent achromatic mark.