by Ian Cooper

The Russell 2000 is at all-time highs.

At its January 2026 peak, the index was up 8%, meaning small-cap stocks were on pace for their strongest start to a year in nearly four decades. This surge is being fueled by a combination of improving earnings expectations, the prospect of additional interest rate cuts, and ongoing signs of strength in the U.S. economy.

Small-cap stocks are particularly sensitive to shifts in economic conditions and Federal Reserve policy. As CNBC recently noted, these companies tend to generate more of their revenue domestically, making them more responsive to U.S. growth trends.

History also favors small caps in easing-rate environments. Because many smaller companies rely more heavily on debt financing, lower interest rates can significantly reduce borrowing costs and improve access to capital. That dynamic can translate into stronger balance sheets and improved profitability. For these reasons, many investors view small caps as among the biggest potential beneficiaries of future rate cuts.

With that backdrop in mind, here are three small-cap ETFs worth considering:

Vanguard Small-Cap ETF (VB)

With a low expense ratio of just 0.05%, the Vanguard Small-Cap ETF tracks the CRSP U.S. Small Cap Index and holds 1,336 stocks. Top holdings include SoFi Technologies, NRG Energy, Atmos Energy, Reddit Inc., and Pure Storage.

VB also pays a quarterly dividend. Most recently, it distributed just over $0.92 per share on December 24, following a payout of more than $0.80 on October 1.

iShares Russell 2000 ETF (IWM)

The iShares Russell 2000 ETF offers direct exposure to U.S. small-cap companies, tracking the Russell 2000 Index with an expense ratio of 0.19%. The fund holds 1,965 stocks, including Credo Technology, Bloom Energy, IONQ Inc., Fabrinet, and Rambus.

IWM also pays a quarterly dividend, with its most recent payment exceeding $0.84 per share on December 19. Prior to that, it paid just over $0.67 on September 19.

Schwab U.S. Small-Cap ETF (SCHA)

With one of the lowest expense ratios in the category at 0.04%, the Schwab U.S. Small-Cap ETF tracks the Dow Jones U.S. Small-Cap Total Stock Market Index. The fund holds 1,687 stocks, including Reddit, Credo Technology, Affirm Holdings, Bloom Energy, and IONQ Inc. SCHA pays a quarterly dividend as well, most recently distributing just over $0.13 per share on December 15, following an $0.08 payout on September 29.