Forget the S&P 500: 3 Unloved Parts of the Market Are Winning in 2026 and These Vanguard ETFs Own Them Cheap

While most investors spent the last decade chasing mega-cap growth, three overlooked corners of the market have quietly been outpacing the S&P 500 in 2026, and a handful of dirt-cheap Vanguard ETFs put all of them within easy reach.

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Year to date through Sept. 1, 2026, the SPDR S&P 500 ETF Trust (SPY) has returned 12.31% on a cumulative total return basis. That’s a perfectly respectable result, but this year the S&P 500 has been getting lapped by several parts of the market investors spent much of the previous decade ignoring, including large-cap value, smaller companies, and small-cap value stocks.

These factor tilts haven’t exactly been popular. For much of the past decade, mega-cap growth dominated as technology companies, particularly the Magnificent Seven, grew earnings rapidly and commanded increasingly large weights in market-cap-weighted indexes. Investors who diversified into cheaper stocks or smaller companies often had to endure years of relative underperformance.

The dynamic has shifted somewhat in 2026. Concerns about the scale of AI capital expenditures, the depreciation expense associated with enormous data center investments, and whether all that spending will ultimately generate adequate returns have helped broaden market leadership. Meanwhile, cheaper value stocks and smaller companies have started catching up.

For aspiring factor investors, I think there are two lessons here. First, size your allocation at a level you can actually stick with. Factors can underperform for years, so I’d rather see someone start with a modest allocation and scale up over time than jump in aggressively after a strong year and panic-sell during the next period of underperformance.

Second, keep fees low. Any expected premium from tilting toward value or smaller companies can be gradually eroded by a high expense ratio. There are excellent actively managed factor strategies available from firms such as Dimensional Fund Advisors and Avantis Investors, but for investors who want something simpler, I still like keeping costs as low as possible.

First up is Vanguard Morningstar Value ETF (VTV), which has returned 18.50% year to date through Sept. 1, comfortably ahead of SPY’s 12.31%. VTV tracks the CRSP US Large Cap Value Index, providing broad exposure to the value side of the large-cap U.S. market. The portfolio currently contains 308 stocks, but its valuation profile looks considerably different from the S&P 500.

VTV’s portfolio trades at approximately 20.4 times earnings compared with roughly 25 times for the S&P 500. You’re effectively paying less for every dollar of corporate earnings while maintaining exposure to established large-cap businesses. The cheaper valuation doesn’t mean investors have to completely sacrifice growth or quality. VTV’s holdings currently have an estimated earnings growth rate of 9.6% and return on equity of 15.8%.

The ETF is also extremely inexpensive. After deducting its 0.03% expense ratio, investors currently receive a 1.81% 30-day SEC yield. For investors who want a relatively mild factor tilt, VTV is probably the easiest of these three to incorporate into an existing portfolio. You’re staying within large-cap U.S. stocks while shifting away from the growth companies that dominate the S&P 500.

If you’d rather target the smaller end of the market, consider the Vanguard Morningstar Small-Cap ETF (VB). It has returned 15.49% year to date through Sept. 1, also ahead of SPY. Despite the name, don’t expect a portfolio filled exclusively with tiny companies.

According to Vanguard, VB’s median market capitalization is approximately $11 billion, putting the typical holding closer to what many investors would consider mid-cap territory. What you do get is considerable breadth. VB owns approximately 1,006 stocks, spreading company-specific risk across a much wider collection of businesses than the S&P 500.