Want to Invest in Small-Cap Stocks? Check Out These Two Top ETFs

The State Street SPDR Portfolio S&P 600 Small Cap ETF (NYSEMKT:SPSM) and the Schwab U.S. Small-Cap ETF (NYSEMKT:SCHA) aim to provide diversified exposure to U.S. small-cap stocks, but they track different indexes and use distinct methodologies. The two ETFs differ most in holdings, sector emphasis, and recent performance, with SCHA offering broader diversification and a stronger one-year return, while SPSM maintains a slightly lower expense ratio and higher yield.

This comparison explores how their portfolio makeup, costs, and recent risk-return profiles may appeal to investors seeking small-cap equity exposure.

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

SPSM edges out SCHA marginally on cost (expense ratio) and yield, offering a slightly higher payout for income-focused investors.

SCHA tracks a broad small-cap index, holding 1,724 stocks and spreading sector weights across financial services (17.9%), industrials (17.2%), and healthcare (15.8%). Its largest positions include Sandisk Corp (NASDAQ:SNDK), Lumentum Holdings Inc (NASDAQ:LITE), and ATI Inc (NYSE:ATI), with no single stock dominating. Sandisk is the largest holding at 2%. With a 16-year history and over $20 billion in assets under management (AUM), SCHA emphasizes diversification and liquidity for investors seeking comprehensive small-cap exposure.

In comparison, SPSM covers 607 stocks, with sector tilts toward industrials (18.1%), financial services (18%), and consumer discretionary (14%). Its top holdings are Solstice Adv Materials Inc (NASDAQ:SOLS), Moog Inc (NYSE:MOGA), and InterDigital Inc (NASDAQ:IDCC), each representing less than 1% of the portfolio. SPSM’s approach is more concentrated, which may result in slightly different risk and return dynamics versus SCHA’s broader reach.

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Small-cap stocks offer high return potential but also carry risks and can be volatile. The key to success in small-cap investing, therefore, often boils down to an investor’s patience and appetite for risk.

Because analyzing, picking, and investing in individual small-cap stocks is not for everyone, the State Street SPDR Portfolio S&P 600 Small Cap ETF and the Schwab U.S. Small-Cap ETF are two of the most elite, low-cost ETFs to invest in small-cap stocks. The number of their holdings, however, can make a big difference.

SCHA Total Return Level data by YCharts

SCHA tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, which comprises over 1,700 stocks and offers the broadest possible exposure to small-cap stocks. SPSM, comparatively, tracks the S&P SmallCap 600 Index and is more concentrated, with nearly one-third as many holdings as SCHA.

SCHA may appeal to investors with a high appetite for risk because of its large portfolio. Over the past one and three years, this ETF has also outperformed SPSM.

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lumentum and Moog. The Motley Fool has a disclosure policy.

Want to Invest in Small-Cap Stocks? Check Out These Two Top ETFs was originally published by The Motley Fool