Quick Read – VB holds 1,300+ small caps at a 0.05% expense ratio, while SPSM screens for profitability only and charges just 0.03%. – Small caps still trade at a meaningful discount to large caps, with SPY commanding 21x earnings versus roughly 16x for small-cap ETFs. – After…
ending much of the past several years trailing large-cap stocks, U.S. small caps have staged an impressive comeback in 2026. The Russell 2000 has outpaced the S&P 500 year-to-date, up approximately 20%, prompting many investors to wonder whether they have already missed the opportunity
However, despite the recent strong performance, the valuation gap between small- and large-caps remains. For investors who believe the small-cap rally is set to continue, the Vanguard Small-Cap ETF (VB) and the SPDR Portfolio S&P 600 Small Cap ETF (SPSM) offer two distinct, low-cost ways to gain exposure to the ongoing trend. Why Small Caps are Rallying While artificial intelligence continues to drive many large-cap technology stocks higher, investors have increasingly looked for ways to reduce concentration risk by broadening their exposure beyond just a handful of mega-cap growth stocks.
After years of lagging the broader market, small-cap stocks continue to trade at a meaningful valuation discount to their large-cap counterparts, making them an attractive holding for investors seeking more reasonably valued opportunities. Rather than signaling a shift away from AI, the recent rally reflects a broadening of market participation. Although the valuation gap has narrowed in recent months, small-cap stocks continue to trade at a discount, suggesting that there may still be room to run if investors continue to rotate into more attractively valued segments of the market.