What is a small-cap ETF?

A small-cap ETF holds stocks of smaller companies, often defined by market capitalization ranges in a specific index. Small caps can provide different economic exposure than large caps and can diversify a portfolio.

Small caps tend to be more volatile and can be more sensitive to the economic cycle, financing conditions, and domestic growth. Liquidity can also be lower at the individual stock level.

When choosing a small-cap ETF, look at whether it's broad small-cap, small-cap value, or another tilt. Those substyles can behave very differently. Also check holdings count and concentration, because some "small-cap" ETFs are narrower than they appear.