The S&P 500 has experienced considerable growth, largely driven by a few megacap growth stocks. Over the past few years, this index has posted impressive total returns, with projections of 26% for 2023, 25% for 2024, and 18% for 2025. However, a wider range of stocks have not shared in this success. Analysts at Vanguard anticipate that certain market segments will significantly outperform the S&P 500 in the long run.
Market Segments Expected to Outperform the S&P 500
According to Vanguard’s Capital Markets Model forecasts, two specific groups are positioned for strong performance over the next decade: small-cap stocks and value stocks. Vanguard analysts recommend not to rely solely on these projections for short-term investment decisions, but they can offer strategic insights for long-term planning.
Projected Returns for Small-Cap and Value Stocks
- Small-cap stocks: projected annualized return of 6.2%
- Value stocks: projected annualized return of 6.8%
- Overall U.S. equities: expected return of 4.9%
- Large-cap stocks: expected return of 4.8%
The current valuation gap between growth and value stocks is noteworthy. As of early 2026, the price-to-earnings (P/E) ratio for the Russell 1000 Growth index is 39.32, while the Russell 1000 Value index stands at 22.12. Similarly, the P/E ratio for the S&P 500 is 24, compared to 16 for the S&P 600. These figures suggest a favorable environment for small-cap and value stocks in the coming years.
Two Vanguard Index Funds to Consider
For those who wish to invest in these promising sectors, Vanguard offers two cost-effective ETFs:
1. Vanguard Small-Cap ETF (VB)
- Tracks the CRSP U.S. Small Cap Index
- Contains over 1,300 diversified stocks
- Expense ratio: 0.03%
- Current price: $262.88 (up 0.87%)
- 52-week range: $190.27 – $281.90
2. Vanguard Value ETF (VTV)
- Tracks the CRSP U.S. Large Cap Value Index
- Includes over 300 diversified stocks
- Expense ratio: 0.03%
- Current price: $198.77 (up 0.76%)
- 52-week range: $150.43 – $208.20
Both ETFs have shown strong performance early in 2026, with the value ETF rising 4% and the small-cap ETF increasing 3%. In contrast, the S&P 500 has declined by 1% during this timeframe. As investors look to enhance their portfolios, small-cap and value stocks represent viable options for diversification and potential growth over the next decade.
