5 Best Small Cap ETFs by 2024 Performance

5 Best Small Cap ETFs by 2024 Performance

International and active funds lead top small cap ETFs this year.

kent
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Research Lead
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Reviewed by: etf.com Staff
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Edited by: James Rubin

Small cap ETFs are not having a good year, but interest rates, attractive valuations and active management may change that trend in the months ahead. 

Year-to-date, the small cap proxy exchange-traded fund, the iShares Russell 2000 ETF (IWM), has gained just over 1% while the broader market, large-cap, tech-driven SPDR S&P 500 Trust ETF (SPY) is up more than 14%. 

But U.S.-focused passively managed funds like IWM are not among the best small cap ETFs of 2024. The top performers have been either international funds or actively managed. 

Best Small Cap ETFs of 2024 by YTD Performance

TickerFundExpense RatioAUMYTD Gain
SMINiShares MSCI India Small-Cap ETF0.79%$945.7M13.67%
MMSCFirst Trust Multi-Manager Small Cap Opps ETF0.95%$15.4M13.30%
DFAUDimensional U.S. Core Equity Market ETF0.12%$5.8B12.81%
EUSCWisdomTree Europe Hedged SmallCap Equity0.58%$47.3M9.98%
HSCZiShares Currency Hedged MSCI EAFE Small-Cap ETF0.42%$135.3M8.16%

Data as of June 13, 2024. Leveraged ETFs were not included in our search. 

iShares MSCI India Small-Cap ETF

The iShares MSCI India Small-Cap ETF (SMIN) tracks small cap companies in India, offering investors exposure to a high-growth potential segment of the Indian stock market. This can be a riskier investment than large-cap stocks, but it also has the potential for higher returns. 

  • YTD Performance: 13.67% 
  • AUM: $945.7M 
  • Expense Ratio: 0.79% 

First Trust Multi-Manager Small Cap Opportunities ETF

The First Trust Multi-Manager Small Cap Opportunities ETF (MMSC) is an actively managed fund that invests in a basket of small cap stocks chosen by multiple investment managers. This approach aims to deliver long-term growth through diversification and expertise, but it carries the inherent risk of small cap stocks. 

  • YTD Performance: 13.30% 
  • AUM: $15.4M 
  • Expense Ratio: 0.95% 

Dimensional U.S. Core Equity Market ETF

The Dimensional U.S. Core Equity Market ETF (DFAU) is an actively managed fund that focuses on small and value stocks within the U.S. market. This strategy targets potentially higher returns compared to large-cap growth stocks but comes with increased volatility. 

  • YTD Performance: 12.81% 
  • AUM: $5.8B 
  • Expense Ratio: 0.12% 

WisdomTree Europe Hedged SmallCap Equity Fund

The WisdomTree Europe Hedged SmallCap Equity Fund (EUSC) offers exposure to small-cap companies in Europe while hedging against currency fluctuations between the US dollar and the euro. This can be attractive to investors seeking growth potential in European small caps without the added risk of euro movements. 

  • YTD Performance: 9.98% 
  • AUM: $47.3M 
  • Expense Ratio: 0.58% 

iShares Currency Hedged MSCI EAFE Small-Cap ETF

The iShares Currency Hedged MSCI EAFE Small-Cap ETF (HSCZ) provides exposure to small-cap stocks in developed markets outside the US and Canada. It also hedges against currency fluctuations, aiming to protect investors from foreign exchange risk while targeting growth in this specific market segment. 

  • YTD Performance: 8.16% 
  • AUM: $135.3M 
  • Expense Ratio: 0.42% 

Tip: For further reading, see our article, Small Cap Stocks: Everything You Need to Know 

Will Small Cap ETFs Outperform Later in 2024?

Inflation, and the higher interest rates that come with it, are the biggest headwinds for small companies, as they are more rate-sensitive than large companies. But the opposite is also true. Falling rates can be a tailwind for small caps. 

When interest rates rise, borrowing becomes more expensive for small companies, squeezing their profits and potentially hindering future growth. 

Furthermore, during rising interest rate environments, investors tend to become more risk averse. They may retreat from smaller, riskier stocks and move towards safer investments like bonds or higher quality large caps. Small caps also have lower trading volume, increasing volatility and disproportionately impacting small cap stocks. 

When inflation and interest rates finally decline, small cap stock ETFs will have greater potential to outperform ETFs investing in larger companies. 

For a recent example, when the Consumer Price Index inflation data arrived cooler than expected last week, IWM jumped more than 3%, while SPY rose about 1.5%, in the first hour of trade following the report.  

Bottom Line on Small Cap ETFs in 2024

Small companies typically rely more on debt financing for growth compared to large-cap companies with more established financial resources. This is why they’re more tied to the direction of inflation and interest rates than large caps, and it explains their underperformance in recent years. 

Small cap stocks are often valued based on their future growth potential. When rates rise, that future growth becomes less valuable, causing their prices to fall more. But when interest rates are falling or low, that future growth is seen as more valuable, leading to higher valuations. 

Therefore, in a soft-landing scenario, where inflation and interest rates fall and the economy avoids recession, small cap ETFs can return to favor, which may be as soon as the second half of 2024 or early 2025. 

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.