Meet the Magnificent Small-Cap ETF Crushing the S&P 500 in 2026. Is It Still a Buy?

Larger companies tend to get much more attention in the stock market than smaller ones, which makes sense. People interact much more with Apple, Coca-Cola, or Amazon than with a regional mining company, niche pharmaceutical company, or local bank.

However, attention doesn't always translate to stock market performance. There are plenty of small-cap stocks that have performed well and continue to do so. The iShares Russell 2000 ETF (IWM +0.54%) is a good example of this, outperforming the S&P 500 by 20.5% to 7.2% so far this year, as of market close on June 26.

Given its recent performance, is IWM still a buy? It depends on your objective.

Image source: Getty Images.

A lot of ground covered with one ETF

While the S&P 500 is the main index for large-cap stocks, the Russell 2000 is essentially the equivalent for small-cap stocks. It tracks the 2,000 smallest stocks in the Russell 3000 index, covering a lot of ground across major sectors.

The S&P 500 has become tech-heavy (38.6% of the index), but the Russell 2000 is much more diversified. Its top five most represented sectors are:

• Industrials: 19.1%
• Information technology (tech): 17.6%
• Healthcare: 17.4%
• Financials: 16.4%
• Consumer discretionary: 7.9%

Expand

NYSEMKT: IWM

iShares Trust - iShares Russell 2000 ETF

Today's Change

(0.54%) $1.63

Current Price

$302.08

Key Data Points

Day's Range

$298.92 - $302.72

52wk Range

$212.34 - $302.72

Volume

9.6M

Small-cap stocks are known for being more prone to volatility because they're more affected by broader economic conditions, but investing in a broad small-cap ETF like IWM gives you the best of both worlds. You get the high-growth potential of small-cap stocks without being susceptible to a single company's risk.

How IWM has stacked up against the S&P 500

IWM is outperforming the S&P 500 so far this year, and has outgrown it since it started trading in May 2000, but this past decade has belonged to the S&P 500.

| Index | Annual Average Since Inception | 3-Year Annual Average | 5-Year Annual Average | 10-Year Annual Average | | --- | --- | --- | --- | --- | | IWM | 7.5% | 18.4% | 5.2% | 10.3% | | S&P 500 | 6.6% | 19.3% | 11.4% | 13.7% |

Data source: YCharts. Returns are through market close on June 26, 2026.

We can't predict how either will perform going forward, but they're both bound to be good long-term investments. The growth of megacap tech stocks is likely to be the reason the S&P 500 outperforms in the near future, but that doesn't diminish IWM's long-term appeal.

Is IWM still a buy right now?

If you're wanting to invest in IWM expecting another 20% returns over the second half of the year, your expectations are probably too high. It's been a great start to 2026 for IWM, but that shouldn't be what's expected.

Other than that, IWM is a good investment because it adds diversification to your portfolio. Unless someone is investing in an all-market ETF like the Vanguard Total Stock Market ETF, it can be easy to focus on large companies and overlook smaller ones.

I wouldn't hold more than 10% of my portfolio in small-cap stocks, but they definitely have a place.