Vanguard Russell 2000 ETF

VTWO

Market cap $14.6B

2026 could see a market rotation that finally favors more cyclical and defensive areas of the market. Bonds and dividend stocks are two areas that could benefit from a growth slowdown in the U.S. economy.

As time goes on, I've started to focus more on building ETF positions and less on individual stocks. I'm planning to buy shares of two ETFs to capitalize on mispriced small-cap stocks and interest rate tailwinds.

The small-cap index has pretty consistently underperformed the S&P 500 for three years. But it could make a comeback, helped by several factors that investors should consider.

Small caps jump early in 2026, reviving the January Effect. ETFs like VTWO offer diversified exposure to potential seasonal and macro-driven gains.

Small cap stocks have lagged behind as large caps lead the artificial intelligence revolution. A reversal of this demand dynamic, however, could be developing.

The Vanguard Russell 2000 ETF looks extremely attractive as we head into 2026. Real estate could be a big winner as interest rates fall, and the Vanguard Real Estate ETF is on my buy list.

Investing in ETFs can help mitigate risk while still amplifying your earnings. Growth ETFs sometimes carry more risk, but they also have potential for greater rewards.

Launched on September 22, 2010, the Vanguard Russell 2000 ETF (VTWO) is a passively managed exchange traded fund designed to provide a broad exposure to the Small Cap Blend segment of the US equity market.

The Vanguard Russell 2000 ETF trades at a P/E ratio of 17.4, significantly below VOO's 28.5 multiple. Small-cap stocks outperformed the S&P 500 during and after the dot-com crash, suggesting they can weather certain storms better.

The S&P 500 is the best way to get overall exposure to the broader U.S. economy. Investing in mid- and small-cap stocks gives you exposure to the additional opportunities.