Zachary Evens: Small stocks have underperformed their larger counterparts for a long time, prompting some people, including myself, to ask: why bother with small-cap ETFs? While there’s an argument to be made on both sides, small-cap valuations are undeniably low, offering investors some upside if they converge with their fair value. Small-cap stocks are risky, though, and investors should control risk if they aim to capture that upside.
Here are three small-cap ETFs that do just that.
3 Great Small-Cap ETFs for 2025
- Dimensional US Small Cap ETF DFAS
- SPDR Portfolio S&P 600 Small Cap ETF SPSM
- Vanguard Small Cap ETF VB
The first ETF is Dimensional US Small Cap ETF, ticker DFAS.
This Gold-rated active ETF systematically selects companies that Dimensional’s research team thinks will do well long-term. It favors the smallest stocks also trading at low valuations.
Selecting the smallest and cheapest companies comes with a high risk of value traps. Value traps are companies whose cheap valuations are deserved because of their deteriorating business. DFAS sidesteps this risk by targeting profitable companies and holding more than 2,000 stocks, so no one holding can drag down performance.
The result is a highly diversified portfolio of relatively high-quality businesses. This combination has reliably produced above-average results with below-average risk: It beat and was less volatile than the Russell 2000 Index over the last three, five, and 10 years.
The second ETF is SPDR Portfolio S&P 600 Small Cap ETF, ticker SPSM.
This is the least expensive ETF featured here, costing investors just 3 basis points annually, allowing investors to keep nearly all of the index’s return and receive the full benefit from securities lending.
This index ETF collects the smallest 600 firms in the broader S&P Composite 1500 Index. It leans into the smallest small-cap firms, which can introduce greater risk since tiny stocks can be highly volatile.
A key differentiator for this market-cap-weighted portfolio is that it allows only profitable companies to enter. This prevents the fund from going too far off the rails when markets sour and may provide a leg-up on competitors, since research shows that profitable firms tend to outperform. It beat the Russell 2000 benchmark over most trailing periods, but the outperformance gap has narrowed lately.
Still, its small size, profitability bias, and razor-thin fee give it an excellent chance to widen that gap. A Gold Medalist Rating underpins our conviction in this ETF.
Rounding out the list is Vanguard Small-Cap ETF, ticker VB.
This index ETF also earns a Gold Medalist Rating for its low-cost and diversified portfolio. It charges just 5 basis points and holds almost 1,400 stocks, market-cap weighted.
The ETF controls risk by targeting slightly larger companies than the Russell 2000 Index and most category peers, including the ETFs already discussed. By broadening the definition of “small cap,” this ETF tends to be less volatile than the Russell 2000 Index and peers. And because larger firms have done better lately, this ETF has been one of the best recent performers in the small-blend category.
Small-cap investors could do worse than these three excellent ETFs.