"After years of mega-cap tech dominance, the Russell 2000 is surging in the first week of 2026, outpacing both the S&P 500 and Nasdaq-100. Fidelity Enhanced Small Cap ETF ( NYSEARCA:FESM) has delivered a 19.95% return over the past year while generating zero Reddit posts, zero news articles, and minimal media attention. That combination of strong performance and complete obscurity makes it worth examining for investors positioning for what many strategists believe could be a multi-year rotation into smaller companies."
"FESM is an actively managed fund investing at least 80% of assets in Russell 2000 Index constituents, using quantitative analysis to select and weight roughly 588 holdings. Launched in November 2023, it lacks a long-term track record but its 0.28% expense ratio sits below the small-cap category average. The "enhanced" approach aims to outperform the benchmark through stock selection rather than index replication."
Small-cap stocks are outperforming large caps in early 2026 as the Russell 2000 outpaces the S&P 500 and Nasdaq-100. Fidelity Enhanced Small Cap ETF (NYSEARCA:FESM) returned 19.95% over the past year while receiving virtually no media attention. FESM actively manages at least 80% of assets in Russell 2000 constituents, using quantitative stock selection across roughly 588 holdings and charging a 0.28% expense ratio. Analysts forecast Russell 2000 earnings growth of about 35% annually over the next two years versus 14% for the S&P 500. The valuation gap and stronger earnings growth create a compelling setup for small-cap rotation. Key indicators to watch include monthly Russell 2000 earnings, industrials, financials, healthcare, and the ISM Manufacturing Index.
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