October 27th, 2025 — a day that made market history. All four major US stock indices hit record highs at the same time: S&P 500, NASDAQ, Dow Jones, and yes… the Russell 2000 small-cap index.
While everyone was hyped about mega-cap tech stocks, the forgotten underdogs—small-cap stocks—were quietly staging a massive comeback.
Missed it? Don’t worry… the opportunity is far from over. Today, I’m breaking down the 3 best small-cap ETFs that could deliver huge long-term gains. By the end of this read, you’ll know exactly which ETF deserves a spot in your portfolio.
🔥 The Backstory: Small Caps Come Alive
Early 2025 wasn’t easy for small-cap investors. While the S&P 500 surged 9.6% through August, the Russell 2000 barely moved, up just 1.5%. Investors flocked to safe-haven tech stocks.
Then, on August 22nd, Federal Reserve Chairman Jerome Powell gave a speech at Jackson Hole, hinting at rate cuts ahead. The result? The iShares Russell 2000 ETF (IWM) shot up nearly 4% in a single day, with $1.5 billion pouring in within a week.
Why the rally? Small-cap companies usually carry more debt. Lower interest rates = cheaper borrowing, bigger margins, and faster growth.
By October 27th, when all four indices hit records simultaneously, historical data showed:
3 months later: 69.7% chance of gains, averaging 2.2%
6 months later: 78.8% chance of gains, averaging 3.8%
Small caps were back—and history favored the brave.
1️⃣ iShares Russell 2000 ETF (IWM) — The Performance Champ
Price: $24.97
Holdings: 1,971
Assets under management: $69.99B
YTD 2025 return: 10.3%
1-year return: 10.6%
5-year annualized return: 11.4%
Why it’s hot: IWM gives broad small-cap exposure, tracking the Russell 2000 index. Top holdings include Bloom Energy, Credto Technology, and ionQ—all innovators in energy, semiconductors, and quantum computing.
Sector breakdown: Financials 16.81%, Tech 16.44%, Healthcare 16.11%, Industrials 15.5%
Dividend yield: 0.96%
Expense ratio: 0.19% (highest among our picks, but worth it for liquidity)
✅ Perfect for momentum investors seeking near-term gains and maximum diversification.
2️⃣ Vanguard Small Cap ETF (VB) — The Smart Money Choice
Price: $257.68
Holdings: 1,342
Assets: $68.79B
YTD 2025 return: 6.9%
5-year annualized return: 12.2%
Expense ratio: 0.05%
Why it’s smart: VB tracks the CRSP US Small Cap Index with ultra-low fees. Over 30 years, these savings can add hundreds of thousands to your portfolio.
Sector tilt: Industrial overweight at 20.9%—perfect for infrastructure and manufacturing growth
Dividend yield: 1.32%
US exposure: 96.75%
✅ Ideal for long-term investors who want cost efficiency and proven compounding.
3️⃣ SPDR Portfolio S&P 600 Small Cap ETF (SPSM) — The Contrarian Value Play
Price: $46.13
Holdings: 610
Assets: $12.89B
YTD 2025 return: 4.2%
5-year annualized return: 12.9%
Expense ratio: 0.03% (lowest!)
Why it’s unique: SPSM focuses on profitable, financially strong small caps, filtering out risky bets. Top holdings include Mr. Cooper Group, Sterling Infrastructure, BorgWarner.
Sector tilt: Heavy financials exposure (25%)
Dividend yield: 1.77%
✅ Great for value investors who can handle short-term underperformance for long-term gains.
💥 Quick Comparison
| ETF | 5-Year Return | YTD 2025 | Expense Ratio | Dividend Yield | Focus |
|---|---|---|---|---|---|
| IWM | 11.4% | 10.3% | 0.19% | 0.96% | Broad small-cap, momentum |
| VB | 12.2% | 6.9% | 0.05% | 1.32% | Low-cost, industrial tilt |
| SPSM | 12.9% | 4.2% | 0.03% | 1.77% | Value, financials, quality focus |
Pro Tip: Blend 50% VB + 50% SPSM to capture industrial growth + value/quality bias, with a blended expense ratio of just 0.04%.
⚠️ Risks to Know
Small caps are more sensitive to economic swings than large caps.
Geopolitical and sector-specific risks may create volatility.
P/E ratios remain elevated, so caution is needed.
But with historical follow-through and Fed rate cuts supporting growth, the potential upside is huge.
💡 Verdict: Which ETF Fits You?
Momentum & Diversification: IWM
Low-Cost, Long-Term Growth: VB
Contrarian, Quality-Focused Value: SPSM
Whatever your strategy, small caps could be your ticket to huge long-term gains.
🔥 Ready to invest in small caps? Start building your ETF portfolio today with Moomoo! Click here 👉 Invest in Small Cap ETFs with Moomoo
💬 Drop a comment: Are you Team IWM, Team VB, or Team SPSM? Let’s see which strategy wins!
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