## [# Small Cap ETFs Are Beating the S&P 500 as the Mag 7 Stumble](/sections/features/small-cap-etfs-are-beating-sp-500-mag-7-stumble)
# Small Cap ETFs Are Beating the S&P 500 as the Mag 7 Stumble
A rough year for most of the megacaps has opened the door for funds that tilt away from the biggest stocks.
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[By Sumit Roy ](/authors/sumit-roy)
Jul 09, 2026
Edited by: ETF.com Staff
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Underperformance across most of the Magnificent Seven is giving ETFs built around smaller stocks a rare chance to beat the S&P 500 this year.
Five of the seven megacaps are trailing the index in 2026. The S&P 500 is up 10.9% year to date through July 9. Apple, with a 16.5% gain, and Alphabet, up 14.8%, are ahead of it, but Nvidia, Microsoft, Amazon, Meta Platforms, and Tesla are all behind, and three of them are in the red for the year.
For most of the past few years, these stocks powered the bulk of the S&P 500's returns. They finished 2025 at roughly 35% of the S&P 500, and they sit at about a third of it today.
Their dominance is why plain exposure to the S&P 500, or to a broader fund like the [**Vanguard Total Stock Market ETF (VTI)**](/vti), has been such a reliable bet. It also punished anyone who strayed from that setup, whether by layering on a mid- or small-cap fund like the [**iShares Core S&P Mid-Cap ETF (IJH)**](/ijh) or the [**iShares Core S&P Small-Cap ETF (IJR)**](/ijr), or by trimming the largest names with something like the [**Invesco S&P 500 Equal Weight ETF (RSP)**](/rsp).
But this year, with the megacaps stalling, those same funds have found an opening. IJH is up 15.3% so far in 2026 and IJR is up 21.6%, both comfortably ahead of the index. RSP has outperformed too, though by a slimmer margin at 12.4%.
Taken together, the data shows smaller companies outrunning their larger counterparts as a group. That may come as a surprise given the magnitude of the AI boom—a boom the Magnificent Seven are spending heavily on and benefiting from.
The boom is real, but so are the questions around it. What kind of returns will the massive spending on AI generate? And how will AI reshape the long-term business models and competitive moats for the Mag-7?
The bigger winners at the stock level have been the semiconductors. There is a chip name inside the Magnificent Seven in Nvidia, but it has sharply lagged the rest of the industry this year. Broadcom, which entered 2026 in the top 10, has also trailed its semiconductor peers.
Micron Technology is the one that broke through, muscling into the top 10 on the back of a massive run tied to memory demand. Names like Intel, AMD, and Applied Materials have also soared.
But because these semis were a relatively small percentage of the S&P 500 entering the year, their surge has not lifted the index the way the Magnificent Seven's gains did in prior years.
Of course, none of this takes much away from the index itself. A double-digit first half is a strong showing in its own right, and it would take far more small-cap outperformance to undo years of large-cap dominance.
Whether that continues will likely come down to the same thing that opened the door in the first place, which is whether the Magnificent Seven keep lagging.
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[ Sumit Roy Senior ETF Analyst ](/authors/sumit-roy)
Sumit Roy is the senior ETF analyst for etf.com and author of (Don't) Invest Like a Pro. He creates a variety of content for the platform, including… [View Bio](/authors/sumit-roy)
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