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Prepare for the January Effect With These 3 Small-Cap ETFs
Written by Nathan Reiff. Posted: 12/26/2025.
Quick Look
- In the new year, small-cap names may be poised to take off based on seasonal investing patterns.
- Two ETFs to consider for broad small-cap exposure are the DISV and the ISVL.
- As a counterbalance to these funds, the DFAU is an often-overlooked broad-based U.S. equities ETF.
Though investors don't universally agree the January Effect exists, the theory suggests small-cap stocks may rise at the start of the year after investors sell losing positions late in the prior year to offset capital gains and then repurchase shares in January.
For investors interested in small-cap stocks, historical January trends can be an added bonus. Small caps often offer potential for outsized returns — though they are typically riskier than larger, more established firms.
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Small-cap exchange-traded funds (ETFs) are a common way to reduce some company-specific risk through a diversified basket of names. At the start of a new year, a seasonal ETF strategy may include shifting toward small-cap funds to try to capture potential fresh momentum. Here are three widely followed funds that provide “small-cap exposure” from different angles.
DISV: Active International Small-Cap Value Exposure, But a Higher Fee
The Dimensional International Small Cap Value ETF (BATS: DISV) targets non-U.S. small-cap stocks in developed markets that managers view as relatively inexpensive.
The fund is actively managed to stay responsive to shifting market conditions, avoid sector biases and maintain hands-on portfolio control.
Investors should expect to pay a modest premium for that active management — DISV carries an expense ratio of 0.42%, higher than many index-linked small-cap alternatives.
For the fee, investors gain access to a curated portfolio of roughly 1,500 small-cap names around the world.
The portfolio is broadly diversified, although the top 50 positions make up about a quarter of assets. Investors may be willing to tolerate a higher expense ratio given DISV's recent returns: the fund has returned nearly 47% year-to-date (YTD), well ahead of the S&P 500 and popular, inexpensive small-cap funds such as the iShares Core S&P Small-Cap ETF (NYSEARCA: IJR), which is up under 9% over the same period.
ISVL: A Lower-Cost International Small-Cap Value Option, But Has Liquidity Concerns
With a similar focus to DISV, the iShares International Developed Small Cap Value Factor ETF (BATS: ISVL) targets small-cap firms selected for value characteristics, excluding companies from the United States and Korea.
The fund leans toward industrials and financials but also includes stocks across other sectors. Companies in Japan and the U.K. receive the largest allocations.
ISVL's holdings are less broad than DISV's — about one-third the number of positions — and a handful of individual companies each represent roughly 1% of the portfolio.
This passively managed ETF has a lower expense ratio of 0.31%, which may appeal to investors seeking a more cost-efficient way to access the international developed small-cap space.
ISVL has also performed strongly, returning nearly 43% over the last year. Investors should note, however, its relatively small assets under management (AUM) and low trading volume, which could create liquidity concerns.
DFAU: A Small-Cap Tilt With Broad U.S. Equity Exposure
The largest and most heavily traded ETF on our list is the Dimensional US Core Equity Market ETF (NYSEARCA: DFAU).
With an expense ratio of 0.12%, it is the least expensive fund discussed here.
While DFAU doesn't explicitly target small-cap names, it tilts toward U.S. companies with smaller market capitalizations, lower relative prices and higher profitability compared with the rest of the U.S. market.
With about 2,300 holdings, DFAU offers broad U.S. equity exposure and can complement a dedicated small-cap position. Active management allows the fund to pivot as market conditions change. The ETF's performance has been roughly in line with the S&P 500 in 2025.
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