Vanguard projects U.S. small-cap stocks will deliver annualized returns of 5.8% to 7.8% through 2034, surpassing large-cap expectations.
Vanguard’s latest market outlook predicts U.S. small-cap stocks will generate annualized returns of 5.8% to 7.8% over the next decade, exceeding the 4.8% to 6.8% forecast for large-cap stocks. The shift follows 15 years of dominance by large-cap growth stocks, particularly in the tech sector.
Recent data from Fidelity highlights small-cap stocks’ stronger earnings growth and lower valuations, factors that may drive long-term outperformance. Year-to-date, small-cap ETFs like the iShares Russell 2000 ETF (IWM) and Vanguard Small-Cap Value ETF (VBR) have already outperformed the S&P 500 and Nasdaq-100.
The iShares Russell 2000 ETF (IWM), tracking 1,974 stocks, has delivered 8.7% annualized returns over 26 years, offering broad exposure to the small-cap segment.