This ETF Has More Than Doubled the S&P 500's Returns This Year, but Be Aware of This One Issue It Could Face in the Second Half of the Year.

Historically, the S&P 500 index has outperformed the Russell 2000. But through market close on July 22, the Vanguard Russell 2000 ETF (NASDAQ: VTWO), which mirrors the latter index, has more than doubled the former's returns this year -- up 19.3% to the S&P 500's 8%.

Investors have slowed their buying of megacap tech stocks because those stocks have become so expensive. Instead, they are venturing into small-cap stocks, where there has been more value to be found lately. Missed Nvidia in 2009?

This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia.

Continue » Broadly speaking, recent macroeconomic changes may alter this trajectory over the remainder of the year. More specifically, despite VTWO's impressive performance so far, it's worth keeping an eye on interest rates, given how they tend to affect smaller companies. Image source: Getty Images.

Interest rates are typically increased to help fight inflation. And although June 2026's overall inflation numbers (based on the CPI-U) came in lower than May's, quieting calls to increase interest rates, renewed conflict in the Middle East could drive energy prices right back up. This would increase the possibility of an interest-rate increase at some point this year.

Why is this relevant to the Vanguard Russell 2000 ETF? Small-cap stocks are generally more sensitive to interest rates than larger companies because they rely more on debt financing. A multinational company with billions of dollars in revenue and cash flow is generally less likely to carry debt than the more than 40% of Russell 2000 companies that are unprofitable.

If interest rates rise, many small-cap stocks will face higher borrowing costs, which will likely increase losses or squeeze already tight margins. This won't necessarily cause VTWO to underperform, but I wouldn't be surprised to see it slow down a bit. The Vanguard Russell 2000 ETF is a great portfolio option to add diversification.

Most popular ETFs are full of large-cap stocks, so having exposure to smaller companies can help hedge against top-heavy concentration and offer different growth opportunities, as seen through the first half of the year. Investing in a small-cap ETF shouldn't replace the S&P 500 by any means, but some exposure is nice. Should you buy stock in Vanguard Russell 2000 ETF right now?

Before you buy stock in Vanguard Russell 2000 ETF, consider this: Story Continues The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Russell 2000 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 $377,990!* Or when Nvidia made this list on April 15, 2005...

if you invested $1,000 at the time of our recommendation, you'd have $1,269,518!* Now, it's worth noting Stock Advisor's total average return is 896% — a market-crushing outperformance compared to 206% for the S&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 July 25, 2026. Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The Motley Fool has a disclosure policy. This ETF Has More Than Doubled the S&P 500's Returns This Year, but Be Aware of This One Issue It Could Face in the Second Half of the Year. was originally published by The Motley Fool Historically, the S&P 500 index has outperformed the Russell 2000.

But through market close on July 22, the Vanguard Russell 2000 ETF (NASDAQ: VTWO), which mirrors the latter index, has more than doubled the former's returns this year -- up 19.3% to the S&P 500's 8%. Investors have slowed their buying of megacap tech stocks because those stocks have become so expensive.

Instead, they are venturing into small-cap stocks, where there has been more value to be found lately. Missed Nvidia in 2009? This Rare Signal Is Flashing Again.

In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Broadly speaking, recent macroeconomic changes may alter this trajectory over the remainder of the year.

More specifically, despite VTWO's impressive performance so far, it's worth keeping an eye on interest rates, given how they tend to affect smaller companies. Image source: Getty Images. Interest rates are typically increased to help fight inflation.

And although June 2026's overall inflation numbers (based on the CPI-U) ca