3 ETFs for the Companies Large-Cap Funds Leave Out. One Returned 18.03% Over the Past Year

Over the year from October 6, 2025 through October 6, 2026, the Schwab U.S. Small-Cap ETF (NYSEARCA:SCHA) returned 18%. That beat the Vanguard Morningstar Small-Cap ETF (NYSEARCA:VB) at 14% and the Vanguard Morningstar Mid-Cap ETF (NYSEARCA:VO) at 11%. All three figures are total returns, with distributions reinvested, reflecting what shareholders actually earned.

What Large-Cap Funds Leave on the Table

A market-cap-weighted fund like the Vanguard S&P 500 ETF (NYSEARCA:VOO) gives its biggest weights to a handful of the world’s largest companies. Thousands of smaller U.S. businesses are either left out of that index or weighted too low to affect results. These three funds own what’s left over, split into two layers: VO holds mid-caps, while VB and SCHA hold small-caps.

SCHA’s latest portfolio filing, dated May 31, 2026, shows how spread out that part of the market gets. The fund held about $22.8 billion in net assets. ATI (NYSE:ATI | ATI Price Prediction), a specialty-materials maker and one of its largest positions, made up only about 0.5% of the fund. Holdings span AI data-center developers, optical component suppliers, crypto miners, clinical-stage biotechs, offshore drillers and specialty insurers, a mix that barely shows up in a mega-cap index.

Mid-Caps Trailed This Year but Led Over Five Years

VO tracks the Morningstar US Mid Cap Index. That benchmark used to carry the CRSP name until Morningstar acquired the CRSP Market Indexes and renamed them. Its holdings sit just below the largest companies. These businesses are big enough to have durable cash flows and broad analyst coverage, but still small enough to grow into large caps.

That profile explains its 11% one-year gain, which trailed both small-cap funds because the past year favored the smaller, more speculative names VO doesn’t own. Over five years, VO’s 44% topped the list. Timing helps explain this. The window opened in October 2021, the month-end high for both small-cap funds, so they started the five-year period at a peak. The tradeoff is that VO will usually lag in the sharp, risk-on rallies where small caps do best.

VB: Vanguard’s Small-Cap ETF

VB tracks the Morningstar US Small Cap Index, which starts where VO’s index ends, so the two Vanguard funds fit together without overlapping. It finished in the middle over both one-year and five-year time periods.

That steadiness comes from how the fund is built. Vanguard’s small-cap band begins right where mid-caps stop, so VB tends toward the larger, more established small caps. Its 2022 month-end decline of 24% was close to VO’s 25%. Much of the fund acts like a smaller version of mid-cap exposure. Investors who want the deepest reach into small caps will find VB more conservative than SCHA.

SCHA: Schwab’s Small-Cap ETF

SCHA tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, the small-cap piece of a total-market benchmark. Its portfolio reaches further into the speculative end of the market, which is why it holds AI infrastructure, crypto mining and early-stage biotech names.

That reach produced the 18% one-year gain. Story-driven small caps tend to rally strongest when investors are hunting for growth. They also fall strongest when sentiment turns. In the 2022 bear market, SCHA’s month-end drawdown reached 27%, the deepest of the three. Its five-year window also began at its October 2021 month-end high. Together, those two facts explain why its five-year return ranks last among the trio. SCHA gives the broadest small-cap exposure here, and it’s also the most volatile.

Why One Year Says Little About Five

Anyone choosing among these funds by trailing one-year returns today would pick SCHA and skip VO. That said, SCHA’s strong year is already counted in its five-year number, and it still wasn’t enough to lift the fund above the others mentioned here.

This lesson applies to measurement windows in general. A single year captures one market environment. This time, it was a stretch when speculative small caps led. Five years captured several environments, including the 2022 bear market. Both windows’ rankings are unreliable guides to what comes next, and this reversal says nothing about whether the order will flip again.

Start dates matter too. Both small-cap funds began the five-year window at a month-end peak, which put them at a disadvantage from day one. Move the window by a few months and the figures change.

Owning Smaller Companies: Real Diversification, Real Drawdowns

Smaller companies give a portfolio exposure to sectors that mega-cap indexes underweight: regional lenders, insurers, energy services firms, industrial suppliers, and emerging biotechs. Their results depend more on the U.S. economy and less on a few dominant technology platforms. That’s why small- and mid-cap exposure has historically acted differently from large-cap exposure, and that difference is the case for diversification.

The cost shows up in drawdowns. Here’s how each fund did in the two most recent major sell-offs, measured on month-end total-return prices, with VOO as the large-cap benchmark:

In the 2020 crash, losses lined up by size: the smaller the companies, the deeper the fall. The spreads narrowed in 2022, but SCHA still fell the most. Vanguard rates both VO and VB at 5 on its risk scale, a level it describes as aggressive, with extremely wide price swings.

Matching the Fund to the Investor

VO suits investors who want to go beyond large caps while keeping drawdowns closer to the broad market’s. VB fits a core small-cap holding built around more established companies. SCHA is for investors who want the widest small-cap reach and can hold through the deepest declines without selling. The right fit depends on how much loss an investor can bear and how long they plan to hold, since the past year showed how little one year’s ranking tells you.

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