7 Best Small-Cap ETFs of March 2024 (2024)

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If you’re looking for one small-cap fund to add to your portfolio, consider buying the Vanguard Small-Cap ETF and be done with it. Passively managed funds offer broad diversification, ultra-low expense ratios and returns that trump most actively managed competitors.

VB includes both growth and value companies. As of late 2022, the fund’s portfolio held stocks with an average earnings growth rate of 15% and a price-to-earnings ratio (P/E ratio) of less than 12. In contrast, the S&P 500’s P/E ratio was just below 20. The fund’s holdings are concentrated among industrials, financials, consumer discretionary stocks, health care and tech.

Another actively managed fund, the Invesco FTSE RAFI US 1500 Small-Mid ETF employs a factor weighting to screen for its component stocks. Managers screen for high book value, cash flow, sales and dividends. Choosing companies with great fundamentals, solid dividends and demonstrated growth helps justify the higher 0.39% expense ratio.

PRFZ has more exposure to tech stocks and health care stocks than most of the other funds on our list. Financials, industrials and consumer discretionary sectors are also heavily represented. For investors who prefer active management and an opportunity to beat passively managed returns, PRFZ might do the trick.

International investing has been downright scary recently. Nevertheless, international small-cap stocks have outperformed large-cap global firms by more than three percentage points over the last two decades.

The U.S. comprises less than half of global investment markets, which is why every investor might consider a modest allocation to international stocks. When global stocks bounce back, the Schwab International Small-Cap Equity ETF could be a great option, and the decent yield offers cash flow right away.

With more than 2,200 stocks from 10 leading countries, the risk of any one stock impacting returns is low. Approximately 64% of the fund’s holdings are based in Canada, Japan, the U.K., Australia and South Korea.

The fundamental index tracks stocks according to four fundamental value factors: sales, cash flow, book value and dividends. Formally known as Research Affiliates Fundamental Indexes (RAFI), this unique indexing strategy tends to favor value stocks, and overweights certain industries.

The Schwab Fundamental US Small Company ETF tracks the Russell RAFI US Small Company Index, whose approach equally weights the four factors—sales, cash flow, dividends and stock buybacks—providing a portfolio that offers greater cash flow and steadier growth than other small-cap investing strategies. FNDA owns nearly 1,000 companies, with approximately 20% concentrated among industrial stocks. Other top market sectors include financials, consumer discretionary stocks and tech.