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Small-cap ETFs extend 2026 rally as value sees inflows
Small caps returned 22.9% in the first half of 2026, and value ETFs pulled in $10.6 billion of July inflows versus $10.2 billion for growth.
Small-cap equities are continuing to outperform large caps into 2026, with ETF Trends highlighting a broad rotation that has favored smaller companies after years of mega-cap technology dominance. State Street Investment Management data cited by the outlet shows small caps returned 22.93% in the first half of 2026, outpacing large caps by a bit more than 13 percentage points.
ETF Trends also points to a stronger tilt toward value. It says value ETFs collected $10.6 billion in July inflows compared with $10.2 billion for growth-focused funds, and that small caps have logged $8 billion in net inflows year to date after $8 billion in net outflows last year.
The article frames the rally as unusually wide rather than driven by a narrow set of stocks. For the first time in more than 30 years of S&P 600 index data, all 11 small-cap sectors outperformed their large-cap counterparts in a single half-year period, producing an average equal-weighted sector return of 23%. It also notes small-cap value barometers beat large-cap peers by 15%, a relative outperformance level not seen since 2002.
Cyan Investment Management portfolio manager Dean Fergie, as quoted by ETF Trends, said sell-offs in large caps tend to be positive for small caps because capital shifts to a different part of the market. The outlet also describes overseas spillover, noting that South Korean retail traders rotated toward oversold Kosdaq small caps after leveraged chip ETF exposure fell, sparking a 30% rally from late-July lows.