Best Small-Cap ETFs for 2024: Performance, Strategy & Statistics

Investing in small-cap ETFs offers exposure to smaller companies with high growth potential, providing diversification and the possibility of substantial returns. However, these investments also come with increased volatility and risk.

This comprehensive guide examines some of the top small-cap ETFs, analyzing their performance, strategies, and key statistics to assist investors in making informed decisions.

What Are Small-Cap ETFs?

Small-cap ETFs focus on companies with relatively small market capitalizations, typically between $300 million and $2 billion. These companies are often in their growth phase and can offer higher returns than large-cap stocks. However, they are also more susceptible to market fluctuations and economic downturns.

Key Benefits of Small-Cap ETFs:

• Growth Potential: Historically, small-cap stocks have outperformed large-cap stocks over the long term.

• Diversification: Investing in an ETF spreads risk across multiple small-cap stocks rather than concentrating it on a single company.

• Lower Costs: ETFs often have lower expense ratios compared to actively managed mutual funds.

Top Small-Cap ETFs for 2024

1. Vanguard Small-Cap ETF (VB)

• Index Tracked: CRSP US Small Cap Index

• Assets Under Management (AUM): $44.5 billion (as of December 2024)

• Expense Ratio: 0.05%

• 5-Year Annualized Return: 8.2%

• Number of Holdings: 1,400+

• Investment Style: Broad small-cap exposure

2. iShares Russell 2000 ETF (IWM)

• Index Tracked: Russell 2000 Index

• AUM: $56.3 billion

• Expense Ratio: 0.19%

• 5-Year Annualized Return: 7.9%

• Number of Holdings: 2,000

• Investment Style: Exposure to the entire small-cap market

3. Schwab U.S. Small-Cap ETF (SCHA)

• Index Tracked: Dow Jones U.S. Small-Cap Total Stock Market Index

• AUM: $16.3 billion

• Expense Ratio: 0.04%

• 5-Year Annualized Return: 8.1%

• Number of Holdings: 1,700+

• Investment Style: Cost-effective broad exposure

4. SPDR S&P 600 Small Cap ETF (SLY)

• Index Tracked: S&P SmallCap 600 Index

• AUM: $4.1 billion

• Expense Ratio: 0.15%

• 5-Year Annualized Return: 8.4%

• Number of Holdings: 600

• Investment Style: Focus on profitable small-cap companies

5. Vanguard Small-Cap Value ETF (VBR)

• Index Tracked: CRSP US Small Cap Value Index

• AUM: $26.4 billion

• Expense Ratio: 0.07%

• 5-Year Annualized Return: 7.6%

• Number of Holdings: 900+

• Investment Style: Small-cap value investing

6. iShares S&P Small-Cap 600 Value ETF (IJS)

• Index Tracked: S&P SmallCap 600 Value Index

• AUM: $6.2 billion

• Expense Ratio: 0.18%

• 5-Year Annualized Return: 7.8%

• Number of Holdings: 600

• Investment Style: Value-oriented small caps

7. Invesco S&P SmallCap Momentum ETF (XSMO)

• Index Tracked: S&P SmallCap 600 Momentum Index

• AUM: $1.1 billion

• Expense Ratio: 0.39%

• 5-Year Annualized Return: 9.2%

• Number of Holdings: 300+

• Investment Style: Momentum investing

8. Avantis U.S. Small Cap Value ETF (AVUV)

• Index Tracked: Custom Small-Cap Value Index

• AUM: $3.5 billion

• Expense Ratio: 0.25%

• 5-Year Annualized Return: 8.5%

• Number of Holdings: 500+

• Investment Style: Actively managed value ETF

9. Dimensional U.S. Small Cap ETF (DFAS)

• Index Tracked: Custom Small-Cap Index

• AUM: $2.2 billion

• Expense Ratio: 0.23%

• 5-Year Annualized Return: 8.7%

• Number of Holdings: 700+

• Investment Style: Factor-based investing

10. WisdomTree U.S. SmallCap Dividend ETF (DES)

• Index Tracked: WisdomTree U.S. SmallCap Dividend Index

• AUM: $3.8 billion

• Expense Ratio: 0.38%

• 5-Year Annualized Return: 7.3%

• Number of Holdings: 500+

• Investment Style: Dividend-paying small caps

Performance Comparison and Historical Trends

Historically, small-cap stocks have outperformed large-cap stocks over long periods. According to data from Morningstar, the Russell 2000 Index has delivered an average annual return of 9.8% since its inception in 1984, compared to 10.5% for the S&P 500 over the same period.

However, small-cap stocks tend to be more volatile, experiencing larger drawdowns during market downturns.

A study by JP Morgan Asset Management found that over rolling 10-year periods, small-cap stocks outperformed large-cap stocks 63% of the time, highlighting their long-term potential.

Additionally, research from Fidelity suggests that value-oriented small-cap ETFs, such as VBR and AVUV, tend to deliver stronger returns in rising interest rate environments.

How to Choose the Right Small-Cap ETF

When selecting a small-cap ETF, consider the following factors:

1. Expense Ratio: Lower expense ratios reduce costs and improve net returns.

2. Liquidity & AUM: Larger ETFs typically offer better liquidity and lower bid-ask spreads.

3. Investment Strategy: Decide between broad exposure (VB, IWM) or specialized factors like value (VBR) or momentum (XSMO).

4. Performance History: While past performance isn't a guarantee of future results, analyzing historical returns can provide insights.

Conclusion: Are Small-Cap ETFs Right for You?

Small-cap ETFs offer an excellent opportunity for investors seeking high-growth potential, diversification, and exposure to emerging companies. However, they come with higher volatility compared to large-cap stocks. Investors should assess their risk tolerance and investment objectives before allocating funds to small-cap ETFs.

For those comfortable with risk, Vanguard Small-Cap ETF (VB), iShares Russell 2000 ETF (IWM), and Avantis U.S. Small Cap Value ETF (AVUV) are strong choices due to their diversification and historical performance. For those seeking specialized strategies, Invesco S&P SmallCap Momentum ETF (XSMO) and WisdomTree U.S. SmallCap Dividend ETF (DES) offer alternative exposure.

By incorporating small-cap ETFs into a diversified portfolio, investors can potentially enhance returns while managing risk effectively.