If the rotation away from mega-caps continues, small caps could stay
in focus. ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏
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 ͏  ͏



 

[Morning Watchlist]

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-------------------------

BET BIG ON SMALL CAP STOCKS WITH ETFS

Small-cap stocks are having a moment.

In early 2026, the Russell 2000 pushed to record levels, extending a
rotation that has favored smaller companies over mega-cap tech for
stretches of the new year. The Wall Street Journal recently noted that
small-caps finished a week at records and had outperformed the S&P 500
for an extended streak—its longest such run since 2008—driven by
improving economic optimism and expectations around policy and rates.

This matters because small caps tend to be MORE ECONOMICALLY SENSITIVE
than large caps. When growth expectations improve and financing
conditions ease, smaller companies often respond faster—both
fundamentally and in market performance.

-------------------------

WHY SMALL CAPS CAN OUTPERFORM WHEN RATES EASE

Small caps can be especially responsive to interest rate expectations
for a simple reason: many rely more heavily on debt financing and have
less “financial cushion” than the largest companies. When rate-cut
expectations rise, the market often anticipates:

*
Lower interest expense over time

*
Easier access to capital

*
Improving profitability on incremental growth

There’s also a “home-field” advantage. Many small-cap businesses
generate a larger share of revenue domestically than multinationals,
making them more directly leveraged to U.S. economic momentum (and in
some cases less exposed to currency translation).

Of course, small caps are not risk-free. They can be volatile, and the
Russell 2000 includes plenty of unprofitable companies. MarketWatch
recently cautioned that early-year small-cap surges can sometimes be
driven by seasonal effects (rebalancing and tax-loss dynamics), and
that valuation arguments can look very different once loss-making
firms are included.

That’s exactly why ETFs can be the cleanest way to participate:
broad exposure, diversified risk, and low-cost implementation.

-------------------------

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THREE SMALL-CAP ETFS TO CONSIDER

ETF: VANGUARD SMALL-CAP ETF (SYM: VB)
THE LOW-COST “CORE” SMALL-CAP ALLOCATION

VB is a straightforward core holding for investors who want broad U.S.
small-cap exposure without paying up for fees.

Vanguard’s own profile page highlights VB’s mandate (tracking the
CRSP U.S. Small Cap Index), along with fund details and holdings
information.

WHY IT CAN WORK WELL IN A PORTFOLIO

*
Broad diversification across the small-cap universe

*
Very low fee structure relative to most active strategies

*
A clean “set it and forget it” way to express the small-cap thesis

VB last traded around $275.95.

INCOME NOTE: VB pays a quarterly distribution; reporting around the
fund’s December 2025 payout indicates a dividend of $0.9268 PER
SHARE PAID ON DECEMBER 24, 2025.

ETF: ISHARES RUSSELL 2000 ETF (SYM: IWM)
THE BENCHMARK “PURE RUSSELL” EXPOSURE

IWM is the classic “beta” instrument for small caps—direct
exposure to the Russell 2000, often used by institutions and traders
as the default small-cap benchmark. iShares’ fund page describes
IWM’s objective and provides up-to-date fund data.

WHY IT CAN WORK WELL IN A PORTFOLIO

*
Direct mapping to the Russell 2000 (the reference index most investors
cite)

*
Very liquid, widely followed, easy to trade or hedge around

*
Useful for tactical exposure when small caps are leading

IWM last traded around $263.37.

INCOME NOTE: IWM pays quarterly; widely reported distribution data
indicates $0.8425 PER SHARE PAID ON DECEMBER 19, 2025.

-------------------------

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ETF: SCHWAB U.S. SMALL-CAP ETF (SYM: SCHA)
THE ULTRA-LOW-COST “BROAD SMALL-CAP” ALTERNATIVE

SCHA is a strong option for investors who want diversified small-cap
exposure with an emphasis on low costs. Schwab’s fund page provides
the mandate (tracking the Dow Jones U.S. Small-Cap Total Stock Market
Index), plus holdings and distribution details.

WHY IT CAN WORK WELL IN A PORTFOLIO

*
Very low-cost access to the space

*
Broad coverage across the U.S. small-cap market

*
Simple choice for long-term small-cap exposure alongside large-cap
core funds

SCHA last traded around $30.72.

INCOME NOTE: SCHA also pays quarterly; reporting indicates $0.1301 PER
SHARE PAID ON DECEMBER 15, 2025.

BOTTOM LINE

Small caps have started 2026 with real momentum, and the macro setup
(rate-cut expectations + domestic growth sensitivity) can be
supportive—though volatility and valuation concerns should be
respected.

For most readers, the cleanest approach is to pick ONE small-cap ETF
that matches the goal:

*
ETF: VANGUARD SMALL-CAP ETF (SYM: VB)
The low-fee “core” allocation.

*
ETF: ISHARES RUSSELL 2000 ETF (SYM: IWM)
The benchmark Russell 2000 exposure.

*
ETF: SCHWAB U.S. SMALL-CAP ETF (SYM: SCHA)
The ultra-low-cost broad alternative.

-------------------------

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_Are there any specific small-caps you're buying right now? What other
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