Are you searching for the subsequent large factor within the inventory market? There’s an opportunity it’s hiding among the many small caps, as a result of these smaller corporations typically stay ignored by buyers. One approach to acquire publicity to all the phase of the market is to purchase a small-cap ETF.
Subjects coated on this web page:
What’s a small-cap ETF?
A small-cap ETF is an exchange-traded fund that invests out there’s smallest corporations by what are referred to as small-capitalization, or small-cap, shares. Small-cap ETFs offer you a simple method to purchase the small-cap “haystack” relatively than search by it for the excessive performers.
Small-cap shares might sound small, however they’re not normally that tiny. The overall worth of all their shares excellent is often between a couple of hundred million {dollars} and some billion {dollars}. That’s small for the inventory market, although, the place market capitalization can hit a trillion {dollars}.
Traders like small caps as a result of they’ll provide larger potential returns than large-cap shares, that are usually represented by the S&P 500 index. Nevertheless, as a result of they’re smaller and have fewer monetary sources, they’re typically riskier and extra risky, too.
Due to these dangers, investing in particular person small shares is best left to extra superior buyers. However even newer buyers should buy a basket of those corporations by a small-cap ETF and reap the benefits of the potential larger returns in undiscovered small shares.
Prime-performing small-cap ETFs
Bankrate chosen its high funds primarily based on the next standards:
- U.S. funds that seem in ETF.com’s screener for small-caps
- Funds among the many high performers during the last 5 years
- Efficiency measured on April 30, 2025
Invesco S&P SmallCap 600 Income ETF (RWJ)
This ETF is predicated on the S&P SmallCap 600 Income-Weighted index, which re-weights shares of the S&P SmallCap 600 index by an organization’s income.
- 2025 YTD efficiency: -15.0 %
- Historic efficiency (annual over 5 years): 20.3 %
- Expense ratio: 0.39 %
Avantis U.S. Small Cap Worth ETF (AVUV)
This fund invests in small-caps throughout industries, and focuses on corporations with robust profitability metrics, notably working money move relative to e-book worth, and engaging valuations.
- 2025 YTD efficiency: -13.6 %
- Historic efficiency (annual over 5 years): 20.0 %
- Expense ratio: 0.25 %
Invesco S&P SmallCap 600 Pure Worth ETF (RZV)
This fund is predicated on the S&P SmallCap 600 Pure Worth index, which selects shares that rating effectively on worth, utilizing such measures because the price-to-earnings ratio and book-value-to-price ratio.
- 2025 YTD efficiency: -16.4 %
- Historic efficiency (annual over 5 years): 19.1 %
- Expense ratio: 0.35 %
Invesco S&P SmallCap Worth With Momentum ETF (XSVM)
This ETF tracks the S&P 600 Excessive Momentum Worth index, which consists of 120 shares with the very best scores on momentum and worth components.
- 2025 YTD efficiency: -10.5 %
- Historic efficiency (annual over 5 years): 18.4 %
- Expense ratio: 0.37 %
VictoryShares US Small Cap Volatility Wtd ETF (CSA)
This index fund tracks the Nasdaq Victory US Small Cap 500 Volatility Weighted Index, which incorporates shares within the Nasdaq US Small Cap Index. The fund contains the five hundred largest worthwhile corporations under a $3 billion market cap and weights them primarily based on volatility.
- 2025 YTD efficiency: -11.4 %
- Historic efficiency (annual over 5 years): 16.0 %
- Expense ratio: 0.35 %
Principal U.S. Small Cap ETF (PSC)
This ETF focuses on small-caps that rating effectively on the components of a high-quality enterprise, favorable value and value momentum.
- 2025 YTD efficiency: -6.9 %
- Historic efficiency (annual over 5 years): 15.3 %
- Expense ratio: 0.38 %
Vanguard Small-Cap Worth ETF (VBR)
This ETF tracks the efficiency of the CRSP U.S. Small Cap Worth Index, which is an index of small progress shares.
- 2025 efficiency: -8.6 %
- Historic efficiency (annual over 5 years): 15.0 %
- Expense ratio: 0.07 %
Are small-cap ETFs funding?
Investing in small-cap ETFs can present engaging returns so long as they’re bought at smart costs, however there are some drawbacks to pay attention to.
Small-cap ETFs let you buy a diversified portfolio of smaller corporations for a comparatively low price. Additionally they received’t require the in depth analysis that investing in particular person corporations does and may be added to your total portfolio shortly to spice up publicity to the small-cap universe. Small caps can generate excessive returns as they develop and grow to be bigger companies. Lots of at the moment’s most profitable corporations began as small caps.
However one downside of investing in small-cap ETFs is that as essentially the most profitable corporations develop, they transfer on from being thought of small-cap and lots of funds are pressured to promote them to remain according to their funding goals. You additionally received’t get the broad diversification that comes with different funds, so if an financial improvement negatively impacts the small-cap universe, you received’t be protected. Small-cap funds additionally are typically extra risky than funds that maintain bigger, extra established corporations.
(You may additionally wish to examine our record of the perfect large-cap ETFs and greatest mid-cap ETFs.)
Backside line
Small-cap ETFs are a horny approach to put money into a number of the market’s fastest-growing corporations at low price with out the identical dangers of shopping for particular person shares. However like all investments within the inventory market, they aren’t with out threat and different drawbacks.
Editorial Disclaimer: All buyers are suggested to conduct their very own impartial analysis into funding methods earlier than investing resolution. As well as, buyers are suggested that previous funding product efficiency isn’t any assure of future value appreciation.
