The iShares Russell 2000 ETF (IWM) has surged 20.5% so far in 2026, significantly outpacing the S&P 500’s 7.2% gain through June 26.
While large-cap stocks like Apple and Amazon dominate headlines, smaller companies are quietly delivering stronger returns for investors paying attention.
The Russell 2000 index tracks the 2,000 smallest stocks within the Russell 3000 index, making it the primary benchmark for small-cap performance.
IWM offers considerably more sector diversification than the S&P 500, which has become heavily concentrated in technology at 38.6% of the index.
The Russell 2000’s top five sectors are industrials at 19.1%, information technology at 17.6%, healthcare at 17.4%, financials at 16.4%, and consumer discretionary at 7.9%.
Since its inception in May 2000, IWM has posted an annual average return of 7.5%, compared to 6.6% for the S&P 500 over the same period.
However, the past decade has favored large-cap stocks, with the S&P 500 delivering a 10-year annual average of 13.7% versus IWM’s 10.3%.
The growth of megacap technology stocks is widely seen as the primary driver behind the S&P 500’s stronger recent performance.
Small-cap stocks tend to be more volatile than large-caps, as they are generally more sensitive to broader economic conditions and business cycles.
Investing in a broad ETF like IWM helps manage that risk by spreading exposure across thousands of companies rather than betting on any single name.
Investors hoping IWM will deliver another 20% gain in the second half of 2026 are likely setting expectations too high, given the strong run already seen.
IWM still serves a legitimate role in a diversified portfolio, particularly for investors who tend to focus heavily on large-cap names.
Keeping small-cap exposure to no more than 10% of a total portfolio is a reasonable approach for most investors seeking balanced long-term growth.
Both IWM and the S&P 500 remain compelling long-term investments regardless of which outperforms in any given year or short-term window.
