Short answer: Small-cap index funds own the smaller U.S. companies an S&P 500 fund leaves out, usually by following an index such as the Russell 2000. In the SEC’s fund data (2025 Q3 to 2026 Q2), we counted 134 of them holding about $620 billion, and the plain ones cost as little as 0.03% a year. If you already own a total stock market fund, you already hold small caps.
Buy an S&P 500 index fund and you own the 500 or so biggest companies in America. What you don’t own is everything below them: thousands of smaller businesses, from regional banks to biotech startups, that most people have never heard of.
Small-cap index funds exist to fill that gap. They’re cheap, they’re broad, and they come with a long-running argument about whether small companies really earn more over time. They also hide a detail that matters more here than anywhere else in index investing: two funds with “small-cap index” in the name can follow very different lists of stocks.
We went through the annual reports and fee tables that U.S. funds file with the Securities and Exchange Commission (SEC) to see how many of these funds there are, what they charge and how they behave. Here’s what turned up, and how to decide whether you need one at all.
What counts as “small”
A company’s market capitalization, or market cap, is simply what the stock market says the whole company is worth. Investor.gov, the SEC’s site for individual investors, defines it as “the value of a corporation determined by multiplying the current public market price of one share of the corporation by the number of total outstanding shares” (Investor.gov).
There’s no official line between small and large. FINRA, the brokerage industry’s regulator, describes small-cap companies as those with a market value between $250 million and $2 billion (FINRA). The companies that build indexes draw the line much higher. When FTSE Russell rebuilt its indexes in June 2026, the cutoff between its large-company and small-company indexes was about $5.7 billion, and the largest company in the small-cap Russell 2000 was worth $9.6 billion (FTSE Russell).
So “small” is relative. A small-cap company in an index fund is often a business worth several billion dollars. It’s small only next to the trillion-dollar giants at the top of the market.
The three indexes behind most small-cap funds
Every index fund copies a list, and in small caps the choice of list changes what you own. Three lists cover most of the money.
The Russell 2000
This is the best-known small-cap benchmark. FTSE Russell ranks U.S. stocks by size: the largest 1,000 go into the Russell 1000, and the next 2,000 form the Russell 2000. Together they make up the Russell 3000, which the company describes as covering about 97% (FTSE Russell) of the investable U.S. stock market.
There’s no quality test. If a company is the right size and its shares trade freely, it’s in, whether or not it makes money. At the June 2026 rebuild, the smallest member was worth $146.4 million (FTSE Russell).
One thing changed this year. The yearly rebuild that investors knew took place each June. In 2026 FTSE Russell is rebuilding the indexes twice, in June and again in December, and it describes the second one as “the first December reconstitution in more than three decades” (FTSE Russell).
The S&P SmallCap 600
S&P Dow Jones Indices takes a pickier approach. Its small-cap index holds 600 companies, and a committee decides what goes in. To be added, a company currently needs a market value between $1.2 billion and $8.0 billion, enough trading activity, and, most importantly, profits: its net income must be positive over the most recent quarter and over the last four quarters combined (S&P Dow Jones Indices methodology).
That profitability rule keeps out many of the money-losing companies that the Russell 2000 lets in. Whether it leads to better returns depends on the period you pick. Over the ten years to mid-2026 the two indexes ended up close together, so treat any claim that one “always wins” with suspicion.
The Morningstar (formerly CRSP) small-cap index
Vanguard’s small-cap fund, the largest of all, follows a third list. Until this summer it was called the CRSP US Small Cap Index. The index has since been rebranded as the Morningstar US Small Cap Index, and on July 29, 2026, the fund was renamed Vanguard Morningstar Small-Cap Index Fund. Vanguard said the name changes “will not affect the funds’ investment objectives or how they are managed” (Vanguard).
This list reaches higher up the size scale than the other two, so it holds more mid-sized companies. At the end of June 2026 the fund’s ETF shares held about 1,300 stocks (Vanguard fact sheet).
What we counted
Each year, every registered fund files a report with the SEC called Form N-CEN, which says, among other things, whether the fund is an index fund. We took each fund’s most recent report filed between the third quarter of 2025 and the second quarter of 2026, the same census we used to count how many index funds there are, and set aside leveraged and inverse funds. That leaves 2,222 index funds.
Funds don’t report their size category, so we picked out U.S. small-cap funds by name: “small-cap”, “small company”, “Russell 2000”, “S&P 600” and “micro-cap”, leaving out international funds. That’s approximate, and it sweeps in specialized funds (small-cap value, small-cap dividend, even small-cap sector funds) along with the plain ones.
| U.S. small-cap index funds | |
|---|---|
| Funds in our count | 134 |
| Of which ETFs | 81 |
| Total assets | about $620 billion |
| Share of all index fund assets | about 4% |
| Held by the three largest funds | about 50% |
| Held by the ten largest funds | about 78% |
Our calculations from SEC Form N-CEN data. Assets are each fund’s average net assets for its reporting year.
Two things stand out. Small-cap index funds are a small corner of indexing: roughly four cents of every dollar in index funds. And the money is concentrated. There are 134 funds to choose from, but half the assets sit in just three.
What they cost
For fees, we used the expense data that funds file with their prospectuses, taking the cheapest share class of each fund.
| U.S. small-cap index funds | All index funds | |
|---|---|---|
| Funds with fee data | 127 | 2,115 |
| Median expense ratio, cheapest share class | 0.29% | 0.32% |
| Funds charging 0.10% or less | 26 | |
| Funds charging 0.50% or more | 22 |
Our calculations from SEC prospectus fee data. Leveraged and inverse funds excluded.
The typical small-cap index fund costs about the same as the typical index fund. But the median hides a wide spread. About one in five charges a tenth of a percent or less, and almost as many charge half a percent or more, usually because they follow a narrower strategy or are sold inside insurance products. Our guide to expense ratios explains how that fee comes out of your returns.
The big, plain funds are far cheaper than the median:
| Fund | Index it follows | Expense ratio |
|---|---|---|
| Vanguard Morningstar Small-Cap Index Fund, ETF shares (VB) | Morningstar US Small Cap Index | 0.03% |
| Schwab U.S. Small-Cap ETF (SCHA) | Dow Jones U.S. Small-Cap Total Stock Market Index | 0.03% |
| State Street SPDR Portfolio S&P 600 Small Cap ETF (SPSM) | S&P SmallCap 600 Index | 0.03% |
| iShares Core S&P Small-Cap ETF (IJR) | S&P SmallCap 600 Index | 0.06% |
| iShares Russell 2000 ETF (IWM) | Russell 2000 Index | 0.19% |
Expense ratios as shown in each fund’s prospectus or on its official page in October 2026. They can change; check the current prospectus.
Notice the last two rows. The same company, iShares, charges 0.06% for one small-cap fund and 0.19% for another. It’s the pattern we found with S&P 500 funds: the name on the index tells you very little about the price.
Small-cap funds trade more, and lend more
Two things set small-cap index funds apart from the rest, and both show up in the filings.
They trade more. Small companies grow out of the index, shrink into it, get bought, or fail, far more often than giants do. So the fund has to buy and sell more. A fund’s turnover rate measures how much of its portfolio it replaced in a year.
| Median turnover rate | |
|---|---|
| All index funds with data (2,132) | 25% |
| U.S. small-cap index funds (128) | 34% |
| Funds with “S&P 600” or “S&P SmallCap” in the name (34) | 41% |
| Funds with “Russell 2000” in the name (16) | 24% |
| Total U.S. stock market index funds (15) | 5% |
Our calculations from SEC prospectus data. Groups are based on fund names and overlap.
The plain versions trade much less than these medians suggest. Vanguard’s small-cap fund reported that “the Fund’s portfolio turnover rate was 17% of the average value of its portfolio” in its most recent fiscal year (Vanguard prospectus). The S&P 600 group looks high because it includes many value, growth and sector versions of that index, which reshuffle more. Still, compare any of these with a total market fund, which barely trades at all.
More trading means more trading costs, which don’t appear in the expense ratio, and in a mutual fund it can mean taxable payouts. We cover that in our piece on capital gains distributions.
They lend more. Index funds can lend their shares to other investors for a fee, and shares of small companies are often in demand. In our census, 120 of the 134 small-cap index funds lent securities during the year, about 90%, compared with 72% of all index funds. Together they earned roughly $290 million from it. Measured against their assets, that’s about 0.05%, four times the rate for index funds as a whole (about 0.01%).
For a fund charging 0.03%, lending income of that size can cover the fee and then some. It’s not guaranteed and it varies a lot from fund to fund; we explain the mechanics in our article on securities lending.
Do small companies really earn more?
This is the pitch you’ll hear most often: small companies have more room to grow, so over the long run they should beat large ones. Academics call it the size effect, and it’s been argued over for decades. The researchers at AQR who reviewed the evidence put it mildly: “Despite its long and illustrious history, much confusion about the size effect remains” (AQR).
Recent history hasn’t been kind to the idea. Over the ten years to June 30, 2026, the Russell 2000 returned 11.62% a year, according to Vanguard’s fact sheet for its Russell 2000 fund (Vanguard). Over the same ten years, the S&P 500 returned 15.51% a year (Vanguard).
That gap is large. On $10,000, it’s the difference between ending up with about $30,000 and about $42,300. (That’s our arithmetic on those index returns, before any fund costs, and it says nothing about the next ten years.)
What isn’t in dispute is the risk. Vanguard’s own prospectus says that “historically small- and mid-cap stocks have typically been more volatile due to the effects of changing economic conditions.” Smaller companies have fewer products, less cash and less access to borrowing, so they tend to fall harder in a downturn.
Put those together and the honest summary is this: small caps have been a bumpier ride, and over the last decade the bumps weren’t rewarded. Over other periods they were. Nobody knows which kind of decade comes next.
You may already own them
Before adding a small-cap fund, check what you have.
If you own a total stock market index fund, you already hold small caps. A total market fund owns large, mid-sized and small companies in proportion to their size. Using FTSE Russell’s June 2026 figures, the Russell 2000’s companies were worth about $3.5 trillion out of $75.6 trillion for the Russell 3000, which works out to under 5% of the market. So in a total market fund, a little under five cents of each dollar is in small caps. Adding a separate small-cap fund on top means deliberately holding more than the market does.
If you own only an S&P 500 fund, you hold none of them. Adding a small-cap or “extended market” fund is a way to cover the rest of the market. Our comparison of total market and S&P 500 funds shows how little this changed results over the past ten years.
If you use a target-date fund, the small caps are almost certainly inside it already.
How to choose one
If you decide you want one, four checks cover most of it.
- Look up the index. The fund’s summary prospectus names it in the first page or two. Russell 2000, S&P SmallCap 600 and Morningstar US Small Cap are all reasonable, but they aren’t interchangeable: one has no profit test, one does, and one leans toward larger companies.
- Compare the expense ratio. Plain small-cap funds are available for 0.03% to 0.06%. There’s rarely a reason to pay several times that for the same index.
- Check it’s the plain version. “Small-cap value”, “small-cap growth”, “small-cap dividend” and sector funds are narrower bets with higher turnover. If you want broad exposure, make sure the name doesn’t carry an extra word.
- Think about the account. Because small-cap funds trade more, an ETF or a tax-advantaged account such as an IRA is usually the tidier home for one. Our guide to Roth IRAs and taxable accounts covers the trade-offs.
And decide in advance how much. A small-cap fund is a side dish. Because these funds swing more than the broad market, a position you’d be tempted to sell after a bad year is too big.
Questions people ask
Is the Russell 2000 the same as “small-cap stocks”? It’s the most quoted measure, but it’s one list among several. The S&P SmallCap 600 holds fewer, profitable companies; the Morningstar index used by Vanguard holds somewhat larger ones.
Why would the same manager charge different fees for two small-cap funds? Partly licensing costs for the index, partly who the fund is aimed at. Funds used heavily by traders often cost more than the “core” versions built for long-term investors.
Are small-cap index funds riskier than an S&P 500 fund? Yes, in the sense that their prices move more. They’re still diversified across hundreds or thousands of companies, so the risk is of a rough stretch for small companies as a group, not of a single company failing.
Do I need a micro-cap fund too? Almost certainly not. Micro-caps are the very smallest listed companies; funds that hold them are few, cost more and are harder to trade.
The short version
Small-cap index funds are a cheap way to own the part of the market an S&P 500 fund leaves out. In SEC filings we counted 134 of them holding about $620 billion, with half of that in three funds, and the plain ones cost as little as 0.03% a year. They trade more than broad funds and earn more from lending their shares.
Whether you need one depends on what you already hold. With a total market fund, you own small caps at their market weight and can stop there. With only an S&P 500 fund, a small-cap fund fills a real gap. Either way, check which index the fund follows before you check anything else.
This article is general information based on public filings, not personal investment advice. See our Financial Disclaimer.
Sources and data notes
- SEC, Form N-CEN data sets, 2025 Q3 to 2026 Q2: index fund status, average net assets and securities lending. Each fund’s most recent report; money market, leveraged and inverse funds excluded.
- SEC, Mutual fund prospectus risk/return summary data sets: expense ratios by share class and portfolio turnover. The small-cap grouping by fund name is our own and approximate; counts, medians, shares and the dollar example are our own calculations. Our editorial methodology explains how we count.
- SEC, Investor.gov, Market Capitalization; FINRA, Market Cap Explained: definitions and size ranges.
- FTSE Russell, 2026 Russell US Indexes reconstitution summary (size cutoff, largest and smallest Russell 2000 companies, total market values at April 30, 2026), Russell US Indexes overview (how the indexes are built) and December 2026 reconstitution schedule.
- S&P Dow Jones Indices, S&P U.S. Indices Methodology: S&P SmallCap 600 size range and earnings requirement.
- Vanguard: press release of April 29, 2026 (fund name changes), U.S. Stock ETFs prospectus (small-cap fund expense ratio, turnover and risk language), Small-Cap ETF fact sheet, Russell 2000 ETF fact sheet and S&P 500 ETF fact sheet (ten-year index returns to June 30, 2026).
- Fund pages: Schwab U.S. Small-Cap ETF, State Street SPDR Portfolio S&P 600 Small Cap ETF, iShares Core S&P Small-Cap ETF, iShares Russell 2000 ETF.
- AQR, Fact, Fiction, and the Size Effect (Alquist, Israel and Moskowitz).
Data as of the 2026 Q2 SEC data sets. Sources checked on October 5, 2026.