VB holds 1,300+ small caps at a 0.05% expense ratio, while SPSM screens for profitability only and charges just 0.03%.
Small caps still trade at a meaningful discount to large caps, with SPY commanding 21x earnings versus roughly 16x for small-cap ETFs.
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After spending much of the past several years trailing large-cap stocks, U.S. small caps have staged an impressive comeback in 2026. The Russell 2000 has outpaced the S&P 500 year-to-date, up approximately 20%, prompting many investors to wonder whether they have already missed the opportunity.
However, despite the recent strong performance, the valuation gap between small- and large-caps remains. For investors who believe the small-cap rally is set to continue, the Vanguard Small-Cap ETF (VB) and the SPDR Portfolio S&P 600 Small Cap ETF (SPSM) offer two distinct, low-cost ways to gain exposure to the ongoing trend.
While artificial intelligence continues to drive many large-cap technology stocks higher, investors have increasingly looked for ways to reduce concentration risk by broadening their exposure beyond just a handful of mega-cap growth stocks. After years of lagging the broader market, small-cap stocks continue to trade at a meaningful valuation discount to their large-cap counterparts, making them an attractive holding for investors seeking more reasonably valued opportunities.
Rather than signaling a shift away from AI, the recent rally reflects a broadening of market participation. Although the valuation gap has narrowed in recent months, small-cap stocks continue to trade at a discount, suggesting that there may still be room to run if investors continue to rotate into more attractively valued segments of the market.
For investors seeking broad exposure to the U.S. small-cap market, the Vanguard Small-Cap ETF is a compelling option.
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The fund tracks the CRSP U.S. Small Cap Index, providing exposure to more than 1,300 companies across a wide range of industries. Top holdings include names such as Credo Technology Group, Jabil Inc (JBL), and Revolution Medicines, Inc (RVMD).
The fund's broad diversification and ultra-low expense ratio of 0.05% make it an attractive core holding for long-term investors.
When compared to the S&P 500, the fund's current Sharpe and Sortino ratios of 1.42 and 2.09 indicate that investors have been well compensated for the additional risk traditionally associated with investing in small-cap stocks. In addition to strong recent performance, valuation metrics also appear favorable, with a price-to-earnings multiple of 17.43x and price-to-book multiple of 2.43x. By comparison, the SPDR S&P 500 ETF (SPY) currently trades at a price-to-earnings of 20.95x and price-to-book of 4.56x.
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