It’s early days in 2026, but small-caps have been a winner in recent months. The Russell 2000 Index has returned 10.6% over the last three months according to YCharts. Small-caps have sometimes offered false dawns to investors, but could this time be different? Small-cap ETFs offer ways to find the highest potential small-cap stocks and take advantage of the trends that are boosting the category to start this year.
See more: Active Bond ETFs Rising: This Fund up Quarter Billion YTD
Small-caps are poised to benefit from a few ongoing trends. Per new analysis from T. Rowe Price Capital Markets Strategist Tim Murray, U.S. small-caps have benefitted from faster earnings growth, lower interest rates, improved lending, and some other important shifts.
“After falling sharply for almost three years, small‑cap earnings began to rapidly improve in late 2025,” Murray wrote. “While trailing 12‑month earnings for the S&P 600 fell 36% from the end of 2022 through September 19, 2025, they rebounded 27% through January 27, 2026, leaving them only 19% lower than their 2022 peak.”
Small-Cap ETFs on the Rise?
What’s more, Murray pointed to the spread of AI benefits to smaller companies, fiscal stimulus, and even an improved outlook for regional banks as factors that can further boost small-caps. Small-cap ETFs, especially powered by active management, can offer an edge in most portfolios.
The T. Rowe Price Small-Mid Cap ETF (TMSL ) provides a strong example. The strategy charges 55 basis points for an active approach to small- and midcap stocks. TMSL has outperformed the Russell 2000 Index over the last three months according to YCharts, returning 14.5% in that same time frame.
It has done so by leaning on T. Rowe Price’s fundamental research capabilities. Its managers can assess opportunities for growth or value measures, constructing its portfolio from the bottom up. It assesses stocks for metrics like profitability, earnings quality, management capital allocation actions, cash flow, book value, sales, and more.
TMSL is also sending a buy signal according to its tech chart in YCharts, with its price above its 50- and 200-day simple moving averages (SMAs). It could be a standout in the small-cap ETFs category for those wanting to embrace the segment’s momentum this year.
For more news, information, and analysis, visit our Active ETF Content Hub.
