<div id="readability-page-1"><div> <h2>Key Points</h2><ul><li>Small caps are having a strong rebound this year thanks to improving earnings, attractive value, and lower rates.</li><li>Given how long they've underperformed large caps, small caps could be setting up for an extended run.</li><li>The iShares Core S&amp;P Small Cap ETF adds a quality screen to its small-cap coverage, giving it an advantage over other similar ETFs.</li><li>10 stocks we like better than iShares Core S&amp;P Small-Cap ETF ›</li></ul>After years of lagging the S&amp;P 500, small caps are finally having a moment again. While large caps are still mostly flat on the year, the iShares Core S&amp;P Small Cap ETF (NYSEMKT: IJR) is up more than 7% year to date (as of March 3, 2026).The artificial intelligence (AI) narrative has played a big part in this. The market has begun looking at things through the lens of how industries will be disrupted by AI, not how profitable it can make the big tech companies. That has led to a major rotation away from tech and into more undervalued areas of the economy. Small caps fall into that group.Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an &#34;Indispensable Monopoly&#34; providing the critical technology Nvidia and Intel both need. Continue »Given how long they've underperformed large caps, small caps could finally be in line for an extended stretch of leadership. Here's the investment case.<img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-dXJsPWh0dHBzOi8vZy5mb29sY2RuLmNvbS9lZGl0b3JpYWwvaW1hZ2VzLzg0ODIzOS9nZXR0eWltYWdlcy0xMjgzMzQyNzU4LmpwZyZ3PTcwMA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="466" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-dXJsPWh0dHBzOi8vZy5mb29sY2RuLmNvbS9lZGl0b3JpYWwvaW1hZ2VzLzg0ODIzOS9nZXR0eWltYWdlcy0xMjgzMzQyNzU4LmpwZyZ3PTcwMA"/>Image source: Getty Images. <h2>Small-cap corporate earnings begin to rebound</h2>Earnings growth is a big driver of long-term stock performance. That hasn't been a problem lately for megacap tech, but it has been for small caps. Earnings were slipping over the past few years, but that trend appears to be reversing now.In the latter part of 2025, small-cap earnings rebounded by 27%, finally providing the fundamental rebound that could support stock price gains. With positive earnings growth and much more attractive valuations to begin with, the foundation is set for a small-cap comeback.<h2>A strong value play</h2>Part of the reason that large caps and tech are struggling in 2026 is because investors are questioning how much they want to pay for the growth story. If earnings momentum slows or there are questions about the health of the U.S. economy, large caps could lead on the way down.That's not as much of an issue with small caps. The iShares Core S&amp;P Small Cap ETF currently has a price-to-earnings (P/E) ratio of 18.5 compared to a 27.7 multiple for the iShares Core S&amp;P 500 ETF. This deep relative discount means 1) there's a lot of value left to potentially still unlock and 2) there should be some downside protection built in because of this if conditions start to head south. <h2>Lower rates act as a tailwind</h2>This one has become a little more iffy in the past couple of months. Toward the tail end of 2025, the market was pricing in multiple Fed rate cuts. Treasury yields also trended modestly lower. Since then, some inflation measures, such as the Fed's preferred PCE price index, have actually moved higher, not lower. Several Fed members have indicated hesitation to cut rates in light of this, and the Treasury rally has stalled.Given its heavier reliance on debt to fund operations, small caps will take any borrowing cost benefit they can get. Rate cuts are probably still coming later this year, but the outlook is a little more cloudy.<h2>Why the iShares Core S&amp;P Small Cap ETF is a top choice</h2>One of the main reasons I prefer this fund over other small-cap ETFs is that it tracks the S&amp;P 600 index. That may not mean much on the surface, but this index has a profitability screen built into its methodology. That means investors get a quality factor with their small-cap exposure.Given that so many small caps are unprofitable, I think this is an important quality factor to have. And it's a good reason why I would never sell this ETF.<h2>Should you buy stock in iShares Core S&amp;P Small-Cap ETF right now?</h2> Before you buy stock in iShares Core S&amp;P Small-Cap ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and iShares Core S&amp;P Small-Cap ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $530,233!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,119,682!* Now, it’s worth noting Stock Advisor’s total average return is 955% — a market-crushing outperformance compared to 191% for the S&amp;P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of March 10, 2026. David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends iShares Core S&amp;P Small-Cap ETF. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. </div></div>

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The iShares Core S&P Small Cap ETF is experiencing a strong rebound, up over 7% year-to-date, driven by improving earnings and attractive valuations. Small-cap earnings grew by 27% in late 2025, indicating a potential comeback. The ETF's P/E ratio of 18.5 offers a relative discount compared to large caps, providing value and downside protection. Despite uncertainties around interest rates, the ETF's focus on profitable small caps makes it a preferred choice for investors. However, analysts suggest considering other stocks for investment opportunities.

Why I Will Never Sell This Small-Cap ETF