Here's the Surprising ETF Trouncing the S&P 500 in 2026

"The S&P 500 stands as the ultimate benchmark for investors, a yardstick against which portfolios are measured. Warren Buffett has championed this view for decades, urging everyday investors to stick with it. In his 2016 Berkshire Hathaway shareholder letter, he stated, "Over the years, I've often been asked for investment advice. My regular recommendation has been a low-cost S&P 500 index fund." The logic is straightforward: If you can't beat the market, just buy the market."

"Yet, in 2026, one ETF is shattering that narrative, delivering returns that dwarf the benchmark. The iShares Russell 2000 ETF ( NYSEARCA:IWM ) is up 6.8% year-to-date while the S&P 500 has slipped 0.1%. Over the past year, the iShares' ETF edge has endured with a 17.6% gain, outpacing the S&P 500's 14.9% advance. Remarkably, the ETF achieves this without the S&P's heavy tilt toward megacaps like Nvidia ( NASDAQ:NVDA | NVDA Price Prediction), Alphabet ( NASDAQ:GOOG )( NASDAQ:GOOGL ), Microsoft ( NASDAQ:MSFT ),"

"Small-cap stocks have lagged the broader market since 2020, weighed down by a perfect storm of challenges. The pandemic hit these companies hardest. J.P. Morgan Asset Management says small caps carry higher debt loads - often 1.5 times that of large caps - making them more exposed to economic shocks. Inflation, fueled by expansive government stimulus, added fuel to the fire."

The iShares Russell 2000 ETF (NYSEARCA:IWM) has outperformed the S&P 500 in 2026, rising 6.8% year-to-date while the S&P 500 slipped 0.1%, and gaining 17.6% over the past year versus the S&P 500's 14.9% advance. The ETF emphasizes small-cap stocks rather than the S&P's heavy tilt toward megacaps such as Nvidia, Alphabet, Microsoft, and Amazon. Small-cap companies suffered since 2020 from pandemic disruptions, higher average debt loads (often 1.5 times large caps), inflationary pressures from fiscal stimulus, and aggressive Federal Reserve rate hikes that raised borrowing costs and constrained growth.

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