Comparing 2026 Market Trends in Small-Cap and Value ETFs

In 2026, investors are navigating a shifting landscape where small-cap stocks and value-oriented funds are challenging the long-standing dominance of large-cap growth equities. While the Vanguard S&P Small-Cap 600 ETF has outperformed the S&P 500 so far this year, its momentum remains tied to the uncertain trajectory of Federal Reserve interest rate policy [1].

Key takeaways

• The Vanguard S&P Small-Cap 600 ETF has more than doubled the return of the S&P 500 in 2026, though this lead could reverse if anticipated interest rate cuts fail to occur [1].
• State Street projects that small-cap and emerging market indexes will return 7.6% and 7.5% annually over the next three to five years, respectively [1].
• Large-cap value ETFs, including VOOV, SPYV, and IVE, have seen a sustained rotation toward value, with each returning roughly 6% year-to-date through mid-May [2].
• Expense ratios vary significantly among value funds, with SPYV offering the lowest cost at 0.04% compared to 0.08% for VOOV and 0.17% for IVE [2].

The Small-Cap and Emerging Market Outlook

The Vanguard S&P Small-Cap 600 ETF tracks 600 U.S. companies with market values between $1.2 billion and $8 billion [1]. While the fund has historically underperformed the S&P 500 over the last decade—partly due to the sensitivity of small businesses to high interest rates—earnings growth for small-cap companies is forecast to outpace large-cap earnings in 2026 [1]. However, the ongoing conflict in Iran has complicated the interest rate environment, making the rate cuts that small-cap stocks rely on less certain [1].

Separately, the iShares MSCI Emerging Markets ETF offers exposure to over 1,200 companies, with significant weightings in technology and financials [1]. State Street suggests that emerging markets may outperform U.S. large-cap stocks in the coming years due to attractive valuations and the potential devaluation of the U.S. dollar [1]. Despite this, the U.S. remains a primary beneficiary of the artificial intelligence revolution, which may continue to support the performance of large-cap U.S. stocks [1].

The Rise of Value-Focused ETFs

A rotation toward value-oriented investments has gained traction in 2026, benefiting funds like the Vanguard S&P 500 Value Index Fund (VOOV), the SPDR Portfolio S&P 500 Value ETF (SPYV), and the iShares S&P 500 Value ETF (IVE) [2]. These funds screen for companies based on book-to-price, earnings-to-price, and sales-to-price ratios [2]. While they share similar underlying index constituents, their structures differ in cost and sector concentration [2].

SPYV is currently the most cost-efficient option for retail investors with an expense ratio of 0.04%, while VOOV is often favored by those already utilizing Vanguard’s platform [2]. IVE, despite having the highest expense ratio of the three, remains a preferred choice for institutional investors and traders due to its deep liquidity and active options market [2].

Why it matters

The market's performance in the latter half of 2026 depends heavily on whether the current rotation into value and small-cap stocks persists or reverts to the growth-heavy trends of previous years [2]. Investors face a choice between the potential for higher growth in smaller or emerging companies and the stability of large-cap U.S. equities [1]. As interest rate expectations fluctuate, the cost-efficiency and sector tilts of these various ETFs will likely remain a primary focus for those managing long-term portfolio allocations [1, 2].