Core Viewpoint - Small-cap stocks, represented by the Russell 2000 index, have started 2026 strongly, outperforming the S&P 500 by over 8% year to date, suggesting a potential resurgence in this market segment [1][2]. Group 1: Market Performance - The Russell 2000 index has not outperformed the S&P 500 in a full calendar year since 2020, indicating a long-term trend that may be reversing [2]. - The Vanguard Russell 2000 ETF has a price-to-earnings ratio of 17.5, suggesting that there is significant value to be unlocked in small-cap stocks [2]. - The early part of 2026 shows a rotation from tech stocks to cyclicals, benefiting sectors like industrials, energy, and materials, which aligns well with small-cap performance [5][6]. Group 2: Sector Composition - The Vanguard Russell 2000 ETF's top three sector exposures are industrials, healthcare, and financials, with technology being a smaller component at around 12% [6]. - This sector composition allows small-caps to potentially benefit from economic growth without the premium valuations associated with tech stocks [5][6]. Group 3: Investment Risks - Approximately 40% of companies in the Russell 2000 are unprofitable, which poses a risk during market corrections or earnings downturns [7]. - While current economic indicators appear strong, a significant slowdown in the labor market raises concerns about the sustainability of small-cap performance [8].
Vanguard Russell 2000 ETF: A Smart Small-Cap Play Right Now?
The Motley Fool·2026-01-25 16:15