What is the average return of small-cap index funds?

From 1972 to 2022, small-cap funds averaged a total annual return of 11.5%, slightly better than the return on large-cap funds.

What is the minimum investment in small cap index?

Minimum investment thresholds vary by company, but many offer small-cap indexes with no minimum investment required.

What is the difference between small-cap and large-cap index funds?

As the name implies, small-cap and large-cap funds differ in the size of the companies they buy. Small-cap funds invest exclusively in companies that have relatively small market capitalizations, while large-cap funds invest only in companies with large market capitalizations. The definition of "small" and "large" varies by company, but small-cap stocks generally are companies with a market capitalization between $300 million and $2 billion.

Do small caps outperform the S&P 500?

Over long periods, small-cap stock indexes tend to outperform the S&P 500, but returns can vary. Over some periods, the S&P 500 has outperformed small caps by a significant margin.

How are small-cap index funds taxed?

Small-cap index funds are taxed on dividends and capital gains distributions, which are either short-term or long-term, depending on an investor's holding period and a fund's holding period for individual investments. Funds held in tax-sheltered accounts, including retirement accounts, are not subject to annual taxation.

Who should invest in a small-cap index fund?

Investors with a long-term horizon who are seeking diversification away from the large stocks that dominate the major indexes might consider a small-cap index fund. Risk-averse or short-term investors might want to limit or avoid small caps as they tend to be more volatile.

Best Small-Cap Index Stocks for 2026 and How to Invest

Make small-cap investing easy.

By Matthew Frankel, CFP – Updated Apr 24, 2026 at 9:46 AM EST | Fact-checked by Frank Bass

Key Points

Small-cap index funds provide diversified exposure, outperforming large caps in bull markets.
Funds like iShares Russell 2000 Growth ETF and Schwab U.S. Small-Cap ETF offer low expense ratios.
Vanguard Small-Cap Value ETF is safer in bear markets with a 2% dividend yield and 0.05% expense ratio.

A small-cap index fund is an exchange-traded fund (ETF) that tracks a small-cap index, such as the Russell 2000. Small-cap companies typically have market caps between $300 million and $2 billion, and are often younger, faster-growing businesses.

These funds offer four key advantages: portfolio diversification across sectors, risk reduction through broad exposure, bull market outperformance relative to large caps, and attractive long-term growth potential, though with greater volatility during downturns.

If you want broad small-cap exposure, the four index funds below are strong options.

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X top small-cap index funds for 2026

Ticker Information Table
Name and ticker	Market cap	Dividend yield	Industry
iShares Trust - iShares Russell 2000 Growth ETF (NYSEMKT:IWO)	$0.0 thousand	0.00%	Capital Markets
iShares Core S&P Small-Cap ETF (NYSEMKT:IJR)	$0.0 thousand	0.00%	Capital Markets
Schwab Strategic Trust - Schwab U.s. Small-Cap ETF (NYSEMKT:SCHA)	$0.0 thousand	0.00%	Capital Markets
Vanguard Small-Cap Value ETF (NYSEMKT:VBR)	$0.0 thousand	0.00%	Capital Markets

Data as of May 18, 2026. Showing 4 of 4 tickers.

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1. iShares Russell 2000 Growth ETF

NYSEMKT: IWO

iShares Trust - iShares Russell 2000 Growth ETF

Today's Change

(-2.68%) $-9.99

Current Price

$362.25

Key Data Points

Day's Range

$361.71 - $365.76

52wk Range

$262.24 - $375.69

Volume

2.5K

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As its name implies, the iShares Russell 2000 Growth ETF aims to track Russell 2000 stocks that exhibit growth characteristics.

This ETF has performed well in bull markets but also falls faster when stocks are down. It is at its best when investors are putting money into smaller, more speculative companies. As the fund's name suggests, it is focused on growth: It aims to provide exposure to small companies with earnings expected to grow at an above-average rate relative to the market.

A growth-oriented fund such as the iShares Russell 2000 Growth ETF carries greater inherent risk, but it offers a reasonable expense ratio of 0.24% for investors seeking small-cap growth.

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2. Schwab U.S. Small-Cap ETF

NYSEMKT: SCHA

Schwab Strategic Trust - Schwab U.s. Small-Cap ETF

Today's Change

(-1.72%) $-0.57

Current Price

$32.58

Key Data Points

Day's Range

$32.50 - $32.77

52wk Range

$23.55 - $33.66

Volume

324

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The Schwab U.S. Small-Cap ETF tracks the small-cap holdings of the Dow Jones U.S. Total Stock Market index. This is sort of a middle-of-the-road index fund ETF. It is neither overly conservative nor too aggressive with its holdings. Since it holds a mix of high- and low-risk stocks, its risk is lower than that of a purely growth-oriented fund. If you're a believer in diversification, this fund provides it.

A low expense ratio of 0.04% and a 10-year compound annual growth rate of more than 10.5% (including dividends) makes the ETF an appealing way to invest in domestic small caps. The fund also pays a dividend yielding about 1.26% of the share price as of Spring 2026.

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3. iShares Core S&P Small-Cap ETF

NYSEMKT: IJR

iShares Core S&P Small-Cap ETF

Today's Change

(-1.62%) $-2.21

Current Price

$133.93

Key Data Points

Day's Range

$133.84 - $135.09

52wk Range

$102.57 - $139.49

Volume

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The iShares Core S&P Small-Cap ETF, with $101 billion in assets, is the biggest small-cap index fund on the market. The fund seeks to track the S&P Small Cap 600 index by holding a broad array of stocks, including Mueller Industries (MLI -2.05%) and Comerica (NYSE:CMA).

Over the past decade, the index has generated an annual return of about 10.5% with dividends. It has an expense ratio of 0.06% and offers a dividend yield of about 1.3%.

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Exchange-Traded Fund (ETF)

An exchange-traded fund, or ETF, allows investors to buy many stocks or bonds at once.

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4. Vanguard Small-Cap Value Index ETF

NYSEMKT: VBR

Vanguard Small-Cap Value ETF

Today's Change

(-1.58%) $-3.66

Current Price

$227.29

Key Data Points

Day's Range

$227.16 - $229.79

52wk Range

$184.56 - $235.68

Volume

223

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The Vanguard Small-Cap Value Index Fund ETF tracks the CRSP U.S. Small Cap Value index. As a value-oriented index tracking fund, the ETF doesn't offer the highest share price growth potential, but it should outperform in bear markets. That's because valuations, especially of high-priced stocks, tend to compress in recessions.

Investors need to be clear about the trade-offs they are making when considering a value fund. This and other value-oriented investments tend to underperform when markets are soaring, but can provide valuable ballast when markets are under pressure.

Currently, the fund offers a dividend yield of about 2% and an attractive expense ratio of 0.05%.

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How to buy small-cap index funds

Open your brokerage account: Log in to your brokerage account where you handle your investments. If you don't have one yet, take a look at our favorite brokers and trading platforms to find the right one for you.
Search for the small-cap index fund you want to buy: Enter the fund's ticker into the search bar to bring up the index fund's trading page.
Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this stock.
Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
Submit your order: Confirm the details and submit your buy order.
Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.

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Benefits and risks of investing in small-cap index funds

There are some excellent reasons you might want to consider adding small-cap index funds to your portfolio:

Portfolio diversification: Investing in a small-cap index fund exposes your portfolio to a wide range of small-cap stocks across different sectors. Diversified portfolios generally perform better than non-diversified holdings because owning the stocks of many different companies ensures that your portfolio's performance is not strongly correlated with the performance of any specific stock and is more resistant to bear markets.
Risk reduction: Small-cap stocks can be risky because they tend to move in step with the broader economic cycle. They are also more volatile than large-cap stocks. Investing in an index fund eliminates some of the risk because the fund gives you a stake in dozens of companies.
Bull market gains: Although large-cap companies are more likely to be profitable, have better access to capital, and can better withstand recessions, small-cap companies tend to outperform during bull markets, which occur when the stock market is on the rise.
Attractive growth potential: Small-cap stocks have historically outperformed large caps over long periods, thanks to their greater growth potential.

On the other hand, there are some major risk factors and drawbacks to consider:

Volatility: Small-cap stocks are generally considered more volatile than larger companies and can be more vulnerable to market fluctuations and economic headwinds.
Fees: While most small-cap index funds have relatively low costs, this is a drawback of investing in index funds versus individual small-cap stocks. Look for expense ratios on individual fund websites and try to find low-cost options.

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Should you invest in small-cap index funds?

As you can see from the list above, small-cap investing doesn't have to be complicated. The four index fund ETFs offer a range of benefits, including growth, value, and income, and all have solid track records. With thousands of small-cap stocks available on the market, buying one of these is a smart and convenient way to reduce the risk of investing in the sector by gaining exposure to a wide range of companies with just one or two investments.

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FAQ

Small-cap index funds FAQ

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst specializing in the real estate and financial sectors. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, Globe St, The National Desk, and other TV networks and publications for his real estate, financial, stock market, and investing expertise.

TMFMattFrankel

@MattFrankelCFP

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mueller Industries and iShares Core S&P Small-Cap ETF. The Motley Fool has a disclosure policy.

Best Small-Cap Index Stocks for 2026 and How to Invest

Make small-cap investing easy.

Key Points

X top small-cap index funds for 2026

1. iShares Russell 2000 Growth ETF

Key Data Points

2. Schwab U.S. Small-Cap ETF

Key Data Points

3. iShares Core S&P Small-Cap ETF

Key Data Points

4. Vanguard Small-Cap Value Index ETF

Key Data Points

How to buy small-cap index funds

Benefits and risks of investing in small-cap index funds

Should you invest in small-cap index funds?

Related investment topics

Are Index Funds a Good Investment? Key Benefits to Know

Stock Market Indexes Explained: What They Are and Why They Matter

3 Best S&P 500 Index Funds to Buy in 2026

8 Best Index Funds to Buy in May 2026

FAQ

Small-cap index funds FAQ

What is the average return of small-cap index funds?

What is the average return of small-cap index funds?

What is the minimum investment in small cap index?

What is the minimum investment in small cap index?

What is the difference between small-cap and large-cap index funds?

What is the difference between small-cap and large-cap index funds?

Do small caps outperform the S&P 500?

Do small caps outperform the S&P 500?

How are small-cap index funds taxed?

How are small-cap index funds taxed?

Who should invest in a small-cap index fund?

Who should invest in a small-cap index fund?

About the Author

Read Next

Stocks Mentioned

Premium Investing Services

Key Data Points

Key Data Points

Key Data Points

Key Data Points

How to buy small-cap index funds

Benefits and risks of investing in small-cap index funds

Should you invest in small-cap index funds?

Are Index Funds a Good Investment? Key Benefits to Know

Stock Market Indexes Explained: What They Are and Why They Matter

3 Best S&P 500 Index Funds to Buy in 2026

8 Best Index Funds to Buy in May 2026

Small-cap index funds FAQ

What is the average return of small-cap index funds?

What is the average return of small-cap index funds?

What is the minimum investment in small cap index?

What is the minimum investment in small cap index?

What is the difference between small-cap and large-cap index funds?

What is the difference between small-cap and large-cap index funds?

Do small caps outperform the S&P 500?

Do small caps outperform the S&P 500?

How are small-cap index funds taxed?

How are small-cap index funds taxed?

Who should invest in a small-cap index fund?

Who should invest in a small-cap index fund?