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Active small- and mid-cap funds trail the S&P 500 after a hard third quarter

The median fund was up 12.5% for 2026 through October 13, and lost 5.2% in the third quarter, while large caps rose.

· 3 min read · By ETF.net Research

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Key takeaways

  • The median active small- and mid-cap fund gained 12.5% this year, trailing large caps.
  • The median active fund lost 5.2% in the third quarter while large caps rose.
  • The strongest small-cap lead since 2001 did not survive the quarter the Fed raised rates.
  • A typical active fund fell less than small caps yet still finished behind large caps.
  • All six of the largest funds lost more than the median in the third quarter.

In etf.net's category of 48 actively managed U.S. small- and mid-cap funds, the median fund was up 12.5% through October 13, 2026. State Street SPDR S&P 500 ETF, SPY, was up 15.0%.

From the June 30 close to September 30, the median fund lost 5.2%. SPY gained 2.4%.

A first half that favored smaller companies

In the first quarter of 2026, the Russell 2000 gained 0.9% and the large-cap Russell 1000 lost 4.2%, FTSE Russell reported. In the second quarter the Russell 2000 rose 21.5%, against 15.1% for the Russell 1000.

On June 30, Morningstar said the Russell 2000 had beaten the S&P 500 by more than 12 percentage points in the first half, its strongest relative showing since 2001. Small caps, it said, had just posted their best first six months of a year since 1991.

These funds are built to own that part of the market, in different ways. J.P. Morgan's JPMorgan Small & Mid Cap Enhanced Equity ETF, JMEE, seeks to beat the S&P 1000 while keeping sector weights close to that index. S&P Dow Jones Indices defines the S&P 1000 as the S&P MidCap 400 and the S&P SmallCap 600 combined, its benchmark for U.S. mid- and small-cap stocks.

Capital Group U.S. Small and Mid Cap ETF, CGMM, and T. Rowe Price Small-Mid Cap ETF, TMSL, are actively managed portfolios that seek long-term growth.

The quarter reversed the lead

On September 16 the Federal Open Market Committee raised its target range for the federal funds rate by a quarter of a percentage point, to 3.75% to 4%.

"Inflation remains elevated," the committee said. "Today's policy action will support a timelier return to the Committee's 2 percent goal."

PNC Economics Research, in a note dated September 16, called it the first increase since mid-2023. The Fed had cut the rate from late 2024 into late 2025 and held it steady until that meeting, PNC wrote. Morningstar wrote the next day that the target had been 3.50% to 3.75% since December 2025, after cuts of 1.75 percentage points from a plateau of 5.25% to 5.50% that ended in September 2024.

FTSE Russell's October review, with data through September 30, said large caps regained the lead over small caps. The Russell 2000 lost 7.2% in the quarter, against a 5.2% loss for the median active fund. BlackRock's iShares Russell 2000 ETF, IWM, seeks to track that index.

The six largest funds in the category all lost more than the median.

The six largest funds all lost more than the median

Total return, June 30 to Sept. 30, 2026

  • Median−5.2%
  • SMIG−5.4%
  • JMEE−5.7%
  • CGMM−6.1%
  • DFMC−6.2%
  • TMSL−7.2%
  • FFSM−11.3%

FFSM lost more than twice the median.

Dimensional's U.S. Micro Cap Portfolio ETF, DFMC, is the largest, with $7.5 billion in assets. It lost 6.2% in the quarter.

The next five by assets are small- and mid-cap funds. All five lost more than the median in the quarter, and only JMEE finished ahead of SPY for the year.

FundThird quarter2026 through October 13
Category median-5.2%12.5%
State Street SPDR S&P 500 ETF, SPY2.4%15.0%
Capital Group U.S. Small and Mid Cap ETF, CGMM-6.1%9.0%
T. Rowe Price Small-Mid Cap ETF, TMSL-7.2%14.2%
JPMorgan Small & Mid Cap Enhanced Equity ETF, JMEE-5.7%15.9%
Bahl & Gaynor Small/Mid Cap Income Growth ETF, SMIG-5.4%10.9%
Fidelity Fundamental Small-Mid Cap ETF, FFSM-11.3%11.2%

In July, Jodi Love, portfolio manager of TMSL, said the earnings turn in small- and mid-cap stocks still had room to run. ETF Trends reported the comments on July 22. As of September 30, FTSE Russell still found the strongest earnings-growth expectations among smaller companies.

A holder of the typical fund is up for the year and behind large caps. The first-half lead for small caps, the strongest relative showing since 2001 by Morningstar's count, did not survive the quarter in which the Fed raised rates.

The typical active fund fell less than the small-cap index in that quarter. The median fund still finished behind SPY.

JMEE, which keeps its sector weights close to the S&P 1000, finished ahead of SPY. None of the other small- and mid-cap funds in the table did.

ETFs in this story

ASPYState Street SPDR S&P 500 ETF71/100AJMEEJPMorgan Small & Mid Cap Enhanced Equity ETF73/100BTMSLT. Rowe Price Small-Mid Cap ETF62/100BFFSMFidelity Fundamental Small-Mid Cap ETF61/100BCGMMCapital Group U.S. Small and Mid Cap ETF63/100

Frequently asked questions

How far behind the S&P 500 are active small- and mid-cap funds this year?

The median fund was up 12.5% through October 13, 2026, and the State Street SPDR S&P 500 ETF was up 15.0%.

What did these funds do in the third quarter?

From the June 30 close to September 30, the median fund lost 5.2%, while the State Street SPDR S&P 500 ETF gained 2.4%.

Did they fall as hard as the Russell 2000?

The Russell 2000 lost 7.2% in the quarter, against a 5.2% loss for the median active fund.

Did any of these funds finish ahead of the S&P 500?

J.P. Morgan's JPMorgan Small & Mid Cap Enhanced Equity ETF finished ahead of the State Street SPDR S&P 500 ETF, and none of the other small- and mid-cap funds in the table did.

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