Core Viewpoint - The iShares Russell 2000 ETF (IWM) has outperformed the S&P 500 in 2026, gaining 6.8% year-to-date compared to a 0.1% decline in the S&P 500, and achieving a 17.6% return over the past year versus the S&P 500's 14.9% [1] Performance Comparison - The iShares Russell 2000 ETF has shown a significant performance advantage over the S&P 500, with a year-to-date gain of 6.8% and a one-year return of 17.6% compared to the S&P 500's 0.1% decline and 14.9% gain respectively [1] - The Russell 2000 Index, which the iShares ETF tracks, returned only 2.2% annually from 2020 to 2024, while the S&P 500 averaged 15.1% during the same period [1] Economic Context - Small-cap stocks, represented by the Russell 2000, faced challenges during the pandemic, including higher debt loads and inflation pressures, which led to underperformance compared to large caps [1] - The Federal Reserve's rate cuts in 2025, reducing the federal funds rate to 3.50%-3.75%, provided relief to small businesses, allowing for a rebound in earnings, which grew by 12% in late 2025 [1] Investment Characteristics - The iShares Russell 2000 ETF manages $76.2 billion in assets and has an expense ratio of 0.19%, making it a cost-effective option for investors seeking exposure to small-cap stocks [1] - The ETF's holdings are diversified across sectors such as industrials (19%), financials (17%), and healthcare (17%), with no single stock exceeding 1% of assets [1] Future Outlook - Economists project that the Federal Reserve may implement two to three more rate cuts in 2026, potentially lowering rates to 2.75%-3.00%, which could further benefit small-cap stocks [1] - Historically, small-cap stocks have outperformed large caps over long periods, delivering a 2% to 3% annual premium since 1926, except during periods of high interest rates [1]

Core Insights - Vanguard S&P 500 ETF (VOO) and iShares Russell 2000 ETF (IWM) target different segments of the U.S. stock market, with VOO focusing on large-cap stocks and IWM on small-cap stocks [1][2] Cost & Size Comparison - VOO has a significantly lower expense ratio of 0.03% compared to IWM's 0.19% [3][4] - As of February 4, 2026, VOO has a 1-year return of 14.0% and IWM has a 1-year return of 14.8% [3] - VOO has a total assets under management (AUM) of $860.7 billion, while IWM has an AUM of $75.6 billion [3] Performance & Risk Comparison - Over the past five years, VOO experienced a maximum drawdown of 24.52%, while IWM had a maximum drawdown of 31.91% [5] - An investment of $1,000 in VOO would have grown to $1,770 over five years, compared to $1,175 for IWM [5] Portfolio Composition - IWM provides exposure to nearly 1,945 small-cap U.S. stocks, with significant sector weights in healthcare (19%), financial services (16%), and technology (16%) [6] - VOO is heavily tilted towards technology (43%) and includes major holdings like NVIDIA Corp, Apple Inc, and Microsoft Corp, with the top three positions accounting for over 20% of its assets [7] Investor Considerations - Both VOO and IWM are attractive options for investors seeking broad market exposure, but they have distinct characteristics that cater to different investment objectives [8]

Core Insights - Small-cap stocks provide the highest long-term returns among major asset classes but often receive little attention from investors, especially when large-cap tech dominates the market [2] - The Vanguard Russell 2000 Index Fund ETF Shares (VTWO) offers diversified small-cap exposure at a very low cost, making it an attractive option for investors [2][3] Small-Cap Diversification Role - VTWO tracks the Russell 2000 Index, comprising over 700 smaller U.S. companies, providing broad diversification at an annual cost of just 0.07%, one of the lowest in the small-cap category [3][7] - The fund has $14.5 billion in assets, balancing liquidity with tight index tracking, making it accessible for various investors [3] - VTWO's exposure to small-cap stocks comes from companies in their growth phase, with diversification across sectors like healthcare, industrials, financials, and technology, ensuring no single holding exceeds 2% of the portfolio [4] Performance Reality Check - Small-cap stocks have faced challenges in recent years, with VTWO's 17.32% gain over the past year lagging behind the large-cap tech rally driven by AI infrastructure spending [5] - Over ten years, VTWO returned 218.63%, significantly underperforming the NASDAQ-100, which surpassed 500% [5][7] - This underperformance is attributed to small caps' structural sensitivity to the rising interest rate environment that began in 2022 [5] Cost Efficiency and Performance - VTWO tracks its benchmark with minimal slippage due to its low expense ratio, with a five-year return of 28.01% showcasing the compounding benefits of Vanguard's cost advantage [6] - Compared to the iShares Russell 2000 ETF (IWM), VTWO's lower fees result in measurable outperformance over time, emphasizing the importance of cost in long-term index tracking [6]

Core Message - Bank of America's top investment strategist Michael Hartnett advocates for a shift in investment strategy, favoring Main Street over global elites as market dynamics change due to cooling inflation, AI disruption, and political pressures ahead of the U.S. midterms [1][2] Investment Strategy - Hartnett suggests investors should "stay long Detroit, short Davos," indicating a preference for U.S. small and mid-cap stocks, banks, REITs, emerging markets, and international equities over major tech companies [1][2] - The "Bro Billionaire" basket, which includes companies like Nvidia, Meta, and Tesla, has only increased by approximately 6% since January 2025, while U.S. small caps have risen closer to 13% [4] Market Dynamics - A quiet rotation is occurring in the market, with assets that were previously underperforming during the bond bear market now starting to outperform elite "Davos" trades [3] - The divergence in performance between small caps and big tech may seem modest but historically indicates the beginning of regime changes in the market [5] Economic and Political Context - Hartnett highlights that macroeconomic and political shifts are driving this rotation, with inflation surprises trending downward and AI adoption impacting the labor market, leading to increased affordability pressures in various sectors [5] - The focus on affordability in energy, healthcare, credit, housing, and electricity is becoming a significant political issue [5] Future Outlook - The investment strategy remains long on Main Street and short on Wall Street until there is an improvement in Trump's approval rating regarding affordability-focused policies [6] - There is a potential risk for former market leaders as a shift from asset-light to asset-heavy business models is anticipated [6]

Core Insights - The article provides a comprehensive market analysis covering major indices such as the S&P 500, US Small Cap 2000, iShares Russell 2000 ETF, and NASDAQ Composite [1] Group 1: S&P 500 - The S&P 500 index has shown significant fluctuations, reflecting broader market trends and investor sentiment [1] - Recent performance indicates a potential shift in market dynamics, with implications for future investment strategies [1] Group 2: US Small Cap 2000 - The US Small Cap 2000 index has experienced notable changes, highlighting the performance of smaller companies in the current economic climate [1] - Investors are advised to monitor this index closely as it may signal broader economic trends [1] Group 3: iShares Russell 2000 ETF - The iShares Russell 2000 ETF serves as a key indicator for small-cap stocks, with its performance closely tied to the overall market sentiment [1] - Recent trends suggest increased volatility, which could impact investment decisions [1] Group 4: NASDAQ Composite - The NASDAQ Composite index has been influenced by technology sector performance, reflecting the ongoing shifts in consumer behavior and technological advancements [1] - Analysts are observing this index for potential investment opportunities as it continues to evolve [1]

Small-Cap Investing: Time for a Fundamental Approach?ETF Trends is now VettaFi. Read More -- Macroeconomic conditions for 2026 may seem a little bit shaky, but one area where advisors and investors might find great opportunities is actually within small-caps.Sure, this is likely not the first year that folks are hearing that small-caps might start threatening to outperform their large-cap counterparts. However, we're starting to see the pieces fall into place to help make that theory a reality.While the Fed ...

Core Viewpoint - The Russell 2000, a small-cap index, has shown strong performance at the start of 2026, outperforming the S&P 500 in the first 14 trading days of the year, indicating a potential shift in market dynamics favoring small-cap stocks [1][4]. Performance Comparison - The Russell 2000 has built a significant lead over large-cap stocks in the first three weeks of 2026, contrasting its underperformance in the previous five years [2][4]. - Historically, the S&P 500 has outperformed the Russell 2000, particularly during the AI boom, but the current trends suggest a possible reversal in 2026 [4]. Valuation Insights - The S&P 500 has seen a price-to-earnings (P/E) ratio of 28, making it one of the most expensive periods in its history, while the Russell 2000 ETF trades at a P/E ratio of 19.5, representing a discount of about one-third compared to the S&P 500 [5][6]. - For the Russell 2000 to match the valuation of the S&P 500, it would need to increase by approximately 50%, which may encourage a rotation from large-cap to small-cap stocks [6][7]. Interest Rate Impact - Small-cap stocks are more sensitive to macroeconomic factors, particularly interest rates. The Russell 2000 has increased by 17% over the last six months due to three rate cuts by the Federal Reserve, lowering the benchmark rate by 75 basis points [8]. - The Federal Reserve is currently forecasting one additional rate cut this year, but there is potential for more cuts, which could further benefit small-cap stocks [9]. Investment Opportunities - The iShares Russell 2000 ETF (IWM) is the largest small-cap ETF with net assets of approximately $75 billion, providing a straightforward way to gain exposure to small-cap stocks [10]. - Individual small-cap stocks such as Amplitude, a digital product analytics software company, and Innodata, a data-labeling specialist, are highlighted as potential breakout candidates for 2026 due to their growth prospects [11]. - The overall outlook for small-caps in 2026 appears positive, with various investment vehicles available for capitalizing on the expected market rotation [12].

Core Insights - The SPDR Dow Jones Industrial Average ETF (DIA) and iShares Russell 2000 ETF (IWM) represent two distinct investment strategies, with DIA focusing on concentrated blue-chip stocks and IWM targeting a broader range of small-cap stocks [5][6][9] Group 1: ETF Characteristics - DIA tracks the Dow Jones Industrial Average, holding only 30 blue-chip U.S. stocks, while IWM captures the performance of approximately 1,954 U.S. small-cap stocks [4][7] - DIA has a sector exposure heavily weighted towards financial services (28%), technology (20%), and industrials (15%), whereas IWM has a more balanced sector allocation with healthcare (19%), financial services (16%), and technology (16%) [2][5] - DIA has a lower expense ratio compared to IWM and currently offers a higher dividend yield, making it appealing for investors seeking lower costs and higher payouts [3][8] Group 2: Performance Metrics - Over the last five years, DIA has shown greater total return and less volatility, with a maximum drawdown of -21% compared to IWM's -32% [8] - Investors may prefer DIA for its combination of lower costs and higher yield, while IWM may attract those looking for diversification and exposure to small and mid-cap stocks [9]

Group 1 - The "Magnificent Seven" stocks, including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, have a combined market cap exceeding $1 trillion and have generated significant returns over the past decade, with Meta Platforms showing a 10-year return of approximately 540% compared to the S&P 500's 265% [1][2][8] - In the past 12 months, the S&P 500 has outperformed all but two of the Magnificent Seven stocks, raising concerns about rising valuations and potential corrections in the tech sector [2][4] - The Roundhill Magnificent Seven ETF offers an easy way to invest in these stocks collectively, with an expense ratio of 0.29% and a 15% increase over the past year [5][6] Group 2 - Small-cap stocks present higher risks but can be mitigated through diversified ETFs like the iShares Russell 2000 ETF, which contains nearly 2,000 stocks, reducing overall risk significantly [6][9] - The financial strength of the Magnificent Seven allows them to adapt to changing market conditions, making them a more stable investment compared to small-cap stocks that may require cash infusions [4][6]

Group 1: Small-Cap Market Dynamics - The small-cap benchmark, tracked by the iShares Russell 2000 ETF, has reached record highs this month, outperforming large-cap indices, indicating a potential shift in market leadership [1][2] - The macro and fundamental case for U.S. small caps remains strong, supported by long-term structural forces rather than short-term positioning [2] - Small-cap earnings revisions are outpacing historical norms and those of mid- and large-cap stocks, suggesting a robust growth outlook inconsistent with a late-cycle slowdown [5] Group 2: Productivity and Financial Conditions - Strong productivity growth allows for above-trend growth without causing inflation, enabling the Federal Reserve to maintain easy financial conditions [3] - The current market environment allows for a focus on labor market and services inflation data as key determinants of policy risk, with geopolitical volatility being treated as opportunities to add risk [4] Group 3: Regional Banks and Financial Fundamentals - Regional banks have shown solid fundamentals this quarter, contributing positively to small-cap performance, with attractive relative valuations [7] - There has been a notable absence of discussions about credit health during earnings calls, indicating a stable outlook for regional banks [8] Group 4: Artificial Intelligence Adoption - The adoption of artificial intelligence is expected to be a significant catalyst for small caps, particularly as it expands beyond software into physical products [9] - The integration of AI into physical products is anticipated to be a major investment theme in 2026, with sectors like power providers, semiconductors, and tech hardware being primary beneficiaries [10] - AI adoption could help small caps close margin gaps that have historically favored large caps, indicating a potential for re-rating in the small-cap sector [11]