H2 2025 ETF Strategy: Time to Lean Into Value, Small Caps?

Markets opened the second half of 2025 with a telling shift as Tuesday’s session saw small caps and value ETFs rally while mega‑cap tech lagged, signaling a rotation in leadership and offering a strategic roadmap for the remaining half of the year.

For example, small-cap ETFs like the iShares Russell 2000 ETF (IWM) and the Vanguard Small-Cap Index Fund ETF (VB) as well as large-cap value funds like the Vanguard Value ETF (VTV) each rose roughly 1%.  

Meanwhile, the S&P 500 barely budged and ended flat on the day.

For advisors, this means guiding clients toward a blend of core equity, value and small-cap ETFs, positioning portfolios to thrive amid shifting economic realities.

In this article, we’ll explore how to position an ETF strategy for an economy where growth is slowing and price still matters.

Mag 7 Stumbles as Tech Cooldown Gains Ground

For ETF investors, a shift in equity positioning means opportunity: A broadening beyond mega-cap momentum plays into smaller, cheaper stocks with potential to catch up. If this trend continues, adding exposure to ETFs like IWM, VB and VTV could harness renewed market breadth and value opportunity.  

Highlighting the signs of rotation, the Magnificent 7, once market beacons, showed cracks on the first trading day of the second half. The Roundhill Magnificent Seven ETF (MAGS) dropped 1.5%, dragged lower chiefly by slipping Tesla Inc. (TSLA) shares.  

ETF portfolios that over-rely on those few tech giants risk staying flat or falling, especially as softening data undermine the narrative of perpetual multiple expansion. Rotating even a modest portion into broader or value-focused ETFs may help offset weakness.

H2 Outlook: Valuation & Fundamentals Come to the Fore

The second half of 2025 will likely favor valuation and fundamentals over speculative momentum.

• Soft consumer sentiment, weakening housing data and slowing discretionary spending point to a slowing economy.
• The extended premium on mega-cap tech valuations may be harder to justify if growth decelerates.
• Meanwhile, small- and large-cap value offers tangible earnings leverage that can outperform in recovering or stable environments.

Final Takeaway

Tuesday’s rotation out of mega-tech and into small-cap and value ETFs indicated a potential second-half leadership reset. As boring as it sounds, diversification appears to be forming into a major investing theme for the second half of 2025.

With economic data softening and valuation premiums under scrutiny, ETF investors and advisors should consider broadening beyond a few high-flyers and lean into fundamentally priced exposure.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in ETFs involves risks, and investors should carefully consider their investment objectives and risk tolerance before making any investment decisions.

At the time of publication, Kent Thune did not hold a position in any of the aforementioned securities.