Small-cap ETFs outpace large caps as active funds attract flows

U.S. small-cap ETFs have outperformed large-cap indexes so far this year. The iShares S&P 600 ETF (IJR) has risen about 12% year-to-date, compared with roughly 7% for the iShares S&P 500 ETF (IVV). Large caps regained some momentum over the past month, while small- and mid-cap stocks have seen gains tied to AI-driven energy demand, electrification and reshoring of supply chains. Average valuations in the small- and mid-cap segment remain lower than in the S&P 500.

Fund flows into small-cap ETFs are uneven. IJR has attracted about $2.1 billion in net inflows year-to-date, while the iShares Russell 2000 ETF (IWM) has recorded more than $5.3 billion in outflows. Passive funds show varied results: the Vanguard Small-Cap Growth ETF (VBK) lost nearly $500 million in 2026 despite posting double-digit gains, and the State Street SPDR Portfolio S&P 600 Small Cap ETF (SPSM) has taken in about $455 million.

Several active small-cap ETFs have drawn significant new money. The Baron SMID Cap ETF (BCSM) reported an active share near 96.3% in early May and holds roughly 50 stocks. The Avantis U.S. Small Cap Value ETF (AVUV) has gathered more than $2.7 billion year-to-date, and the Avantis U.S. Small Cap Equity ETF (AVSC) has added about $270 million; both funds are up roughly 15% year-to-date. The T. Rowe Price Small-Mid Cap ETF (TMSL) has seen over $800 million in net inflows, and the Capital Group U.S. Small and Mid Cap ETF (CGMM) has added about $1.2 billion. T. Rowe Price’s active ETF lineup has grown to about $25 billion in assets.

Some investors remain cautious about small caps. Reasons cited include recent large-cap outperformance, concerns that higher-for-longer interest rates could pressure smaller companies, and a high share of unprofitable firms in some small-cap indexes; the Russell 2000 can include as many as 40% unprofitable companies.

Matt Camuso, head of ETF solutions at Baron Capital, said valuations in the small- and mid-cap space “are as attractive as they’ve been in decades,” and he noted that a concentration of elevated multiples in a few large S&P 500 names has left many SMID stocks behind. Camuso described his firm’s approach as focused on companies with clearer paths to profitability and strong management, and said small-cap investing requires “legendary patience.”