Top 2 Index Funds to Beat the S&P 500 Over the Next 5 Years, According to Wall Street

Key Points

• For years, the S&P 500 has easy delivered the champion operation of net maturation and capitalist performance.

• Later this year, smaller companies are yet expected to present amended net maturation rates than ample caps.

• That could yet assistance unlock a batch of built-up worth successful tiny caps and mid caps.

Up until 2026, the S&P 500 (SNPINDEX: ^GSPC) spent years arsenic the people of the U.S. equity market. Powered by the "Magnificent Seven" stocks and the artificial quality (AI) boom, ample caps were wherever investors recovered the champion returns.

But the marketplace whitethorn yet beryllium turning. The tech assemblage is successful the reddish for the year, portion value, defensive, dividend, and small-cap stocks are outperforming. Investors are considering whether AI spending has gotten retired of power and valuations connected pricey megacap maturation stocks person gotten a small excessively high, fixed conditions.

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If your portfolio is inactive dense successful the S&P 500 oregon Nasdaq-100, it mightiness beryllium clip to look elsewhere for amended opportunities. Here are 2 ETFs that I judge are primed to outperform the S&P 500 implicit the adjacent respective years.

Image source: Getty Images.

1. iShares Core S&P Small-Cap ETF

Over the past fewer years, tiny companies person struggled to turn earnings. They were archetypal deed by precocious ostentation and past again by tariffs connected imported goods. The S&P 600 Small Cap scale experienced 11 consecutive quarters of antagonistic year-over-year net maturation from 2022 to aboriginal 2025.

That inclination is yet opening to reverse. The scale returned to affirmative net maturation successful the 2nd 4th of 2025. In precocious 2026, it's forecast to present a higher net maturation complaint than the S&P 500. If that anticipation holds, tiny caps could soon present above-average net maturation astatine a price-to-earnings (P/E) ratio that's much than 30% little than that of the large-cap index.

The iShares Core S&P Small-Cap ETF (NYSEMKT: IJR) tracks the S&P 600 scale and is poised to capitalize connected this development. And with an disbursal ratio of conscionable 0.06%, it's 1 of the cheapest ways to entree it.

2. Vanguard Mid-Cap ETF

If you judge successful the small-cap story, the mid-cap communicative isn't overmuch different. It could astir apt beryllium considered a literal mediate crushed betwixt tiny and ample companies, wherever net maturation rates look compelling and P/E ratios autumn determination successful between.

The different large vantage of moving into mid caps present is however overmuch antithetic the scale looks than the S&P 500. Industrials is the largest assemblage holding astatine astir 20% of assets. After that, user discretionary, financials, and exertion are each astatine astir 13% to 15%. That creates a overmuch much diversified portfolio that's little reliant connected conscionable the tech assemblage oregon a fistful of companies.

The Vanguard Mid-Cap ETF (NYSEMKT: VO) follows the CRSP US Mid Cap Index, a cap-weighted handbasket of astir 300 stocks wrong a circumstantial marketplace headdress range. In existent Vanguard fashion, its 0.03% disbursal ratio is among the lowest successful this abstraction portion remaining highly liquid and tradable.

Should you bargain banal successful iShares Core S&P Small-Cap ETF close now?

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David Dierking has nary presumption successful immoderate of the stocks mentioned. The Motley Fool has positions successful and recommends Vanguard Mid-Cap ETF and iShares Core S&P Small-Cap ETF. The Motley Fool has a disclosure policy.