I Predicted This ETF Would Soar in 2025 -- It Didn't, But Here's Why I'm Still a Buyer in 2026

As 2025 got underway, I wrote an nonfiction referring to the Vanguard Russell 2000 ETF (NASDAQ: VTWO) arsenic 1 of the champion investments for 2025 and beyond. At the time, the benchmark small-cap scale was approaching correction territory, owed to marketplace turbulence that deed smaller companies hard.

Well, the ETF delivered a full instrumentality of astir 13% for the year, truthful it's not arsenic if this was a disastrous telephone by immoderate means. But my prediction was that the Russell 2000 would handily outperform the S&P 500, and that didn't hap past year, with the continued AI surge fueling an 18% instrumentality successful the large-cap benchmark.

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There were 2 basal components of my concern thesis a twelvemonth ago. First, small-cap stocks were trading astatine their top valuation spread comparative to ample caps successful much than 25 years. The mean price-to-book ratio of a Russell 2000 constituent was 2.1, compared to 5.0 times publication for the emblematic S&P 500 company.

Second, falling involvement rates mostly favour smaller companies. They thin to beryllium much reliant connected borrowed wealth than their larger counterparts, and arsenic yields connected "safe" instruments similar bonds and CDs go little attractive, wealth flows backmost into the marketplace and into "riskier" assets, peculiarly small-cap stocks.

To beryllium fair, I wasn't wholly incorrect with my bull case. After all, a 13% instrumentality successful 1 twelvemonth is solid, historically speaking. Plus, I ended the prediction nonfiction by clarifying that I wasn't conscionable buying for the 2025 show -- I liked the Russell 2000 arsenic a semipermanent concern astatine that level.

I inactive judge the adjacent decennary volition beryllium amended for tiny caps than for the S&P 500, truthful I'm inactive buying shares of the Vanguard Russell 2000 ETF successful my portfolio. After all, the valuation spread betwixt the 2 types of stocks has widened adjacent further, and past clip determination was specified a quality (the dot-com roar successful the 1990s), tiny caps went connected to outperform for much than a decade.

Not lone that, but astir experts judge involvement rates volition proceed to inclination little for astatine slightest the adjacent mates of years, positive the Trump medication is mostly successful favour of little regulations connected businesses, which tin assistance tiny caps amended vie with larger companies.

Before you bargain banal successful Vanguard Russell 2000 ETF, see this: