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A Small-Cap ETF With a Best-of-Both Worlds Approach

BY | ETF Database
5:50 am ET 09/09/26 | 8 VIEWS
Small-cap bullishness in 2026 is being widely discussed and bringing some renewed attention to the once-beloved small-cap value combination. In fact, some popular small-cap value gauges are performing in line with or outpacing their blend counterparts. Entering Friday, September 4, the S&P SmallCap 600® Index and its value counterpart sported essentially the same year-to-date gain of nearly 21%. Some experts view the simultaneous rally in small-cap value and mega-cap growth as an anomaly. But as unusual as the scenario is, it may also signal opportunity with a unique small-cap value ETF such as the Invesco S&P SmallCap Value with Momentum ETF (XSVM B).Year to date, the $646.5 million XSVM is beating the S&P SmallCap 600 and the S&P SmallCap 600 Value indexes by more than 200 basis points. This confirms the validity of the small-cap/value/momentum partnership. Given these momentum tailwinds, more upside could be in store for XVSM.XSVM is at the Right Place at the Right TimeXSVM, which turned 21 years old in March, tracks the S&P 600 High Momentum Value Index. As its name implies, that gauge assesses stocks based on both momentum and value scores. When stocks make the cut for inclusion, those with the highest value scores receive the largest weights. So yes, XSVM is true to its small-cap value roots and that’s potentially attractive to advisors and investors at a time when small-cap value investing is on the mend in a big way. Interestingly, some of the renewed enthusiasm for this factor combination is attributable to the artificial intelligence (AI) trade. “Many small-value portfolios fit the HALO theme, which stands for heavy assets, low obsolescence,” noted Morningstar’s Russ Kinnel. “The idea is to find capital-intensive companies with large physical structures that generally don’t look like chum for AI — think energy producers and large machines. There are slews of little, overlooked companies like that.” Home to 118 stocks, XSVM has some HALO credibility as the energy, industrial, and materials sectors combine for about 15% of the ETF’s weight. The ETF has other sources of allure in the current macroeconomic environment. For example, much of its consumer discretionary sleeve (18.15% of its weight) caters to cost-conscious consumers or has the enviable positioning in select regions. Impressively, small-cap financial services stocks, which account for nearly half the XSVM portfolio, are proving sturdy this year even with no help from the Federal Reserve when it comes to lower interest rates. That may be a sign that smaller banks, including some residing in the Invesco ETF, are benefiting from earnings growth, improving credit quality, and solid local/regional economies. For more news, information, and analysis, visit the Innovative ETFs Content Hub. Invesco Distributors, Inc. is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Invesco Distributors, Inc., nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.

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