Why Small-Cap ETFs Can Win The First Half in 2026

Core Insights - Small-cap stocks have shown strong performance recently, with the Russell 2000 Index returning 10.6% over the last three months [1] - Small-cap ETFs are positioned to capitalize on ongoing trends such as faster earnings growth, lower interest rates, and improved lending conditions [1] Group 1: Small-Cap Performance - U.S. small-cap earnings have rebounded significantly, with a 27% increase from January 27, 2026, after a 36% decline from the end of 2022 to September 19, 2025, leaving earnings only 19% lower than their 2022 peak [1] - The resurgence in small-cap earnings began in late 2025, indicating a potential shift in market dynamics [1] Group 2: Factors Supporting Small-Cap Growth - The spread of AI benefits to smaller companies, fiscal stimulus, and an improved outlook for regional banks are contributing factors that may further enhance small-cap performance [1] - Active management in small-cap ETFs, such as the T. Rowe Price Small-Mid Cap ETF (TMSL), is highlighted as a strategy that can provide an edge in portfolio performance [1] Group 3: T. Rowe Price Small-Mid Cap ETF (TMSL) - TMSL has outperformed the Russell 2000 Index with a return of 14.5% over the last three months, showcasing the effectiveness of its active management approach [1] - The ETF charges 55 basis points and utilizes fundamental research to assess growth opportunities and value measures, focusing on metrics like profitability and cash flow [1] - TMSL's technical indicators suggest a buy signal, with its price above the 50- and 200-day simple moving averages, indicating strong momentum in the small-cap segment [1]