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Best Small Caps ETFs on the ASX

Small-cap ETFs provide exposure to smaller companies that are not included in large-cap benchmarks like the ASX 200 or MSCI World. Small companies are typically earlier in their growth cycle, offering higher return potential but also higher risk.

3
ETFs tracked
0.25%
Lowest MER
+12.9%
Best 1Y return
$2,181.2M
Total AUM
VSO
Top pick
Fees (MER) - Lower is better
ISO
0.25%VSO
0.30%VISM
0.33%
1-Year Returns
VISM
+12.9%VSO
+12.5%ISO
+10.3%

All Small Caps ETFs

sorted by Score · highest firstclick any column to sort
ETF Name Score MER 1Y Return 3Y Return Yield AUM ($M)
VSOVanguard MSCI Australian Small Companies Index ETF560.30%+12.5%+9.4%6.80%1,179.9
VISMVanguard MSCI Intl Small Companies Index ETF460.33%+12.9%+13.0%4.27%807.9
ISOiShares S&P/ASX Small Ordinaries ETF430.25%+10.3%+7.3%1.83%193.4

Overview

Small-cap ETFs provide exposure to smaller companies that are not included in large-cap benchmarks like the ASX 200 or MSCI World. Small companies are typically earlier in their growth cycle, offering higher return potential but also higher risk.

What to look for

For Australian small-caps, ISO (0.25%) tracks the S&P Small Ordinaries while VSO (0.30%) uses the MSCI methodology. For international small-caps, VISM (0.33%) provides broad global coverage. ISO is the cheapest domestic option. All small-cap ETFs have higher volatility than their large-cap equivalents.

Considerations

Academic research supports a 'small-cap premium' - the historical tendency for small companies to outperform large companies over long periods. However, this premium has been inconsistent and can disappear for decades. Small-cap ETFs have wider bid-ask spreads and can be harder to exit during market stress. They typically perform best in economic recovery phases and underperform during market downturns when investors flee to safety.

Compare Small Caps ETFs

ISOvsVSO
iShares vs Vanguard Australian small caps

Frequently Asked Questions

What is a Small Cap ETF?+

A small cap ETF invests in smaller ASX-listed companies outside the S&P/ASX 100, typically tracking the S&P/ASX Small Ordinaries Index. Key funds include ISO (iShares) and VSO (Vanguard), which hold around 200 companies with market caps generally between $300 million and $2 billion. These companies often have domestic earnings focus, less analyst coverage, and higher growth potential than large-cap peers, offering exposure to emerging Australian businesses across sectors like mining, tech, and healthcare.

What should investors look for when choosing a Small Cap ETF?+

Compare management fees - ISO charges 0.24% versus VSO at 0.30% - and check the underlying index methodology, as both track the S&P/ASX Small Ordinaries but may differ slightly in rebalancing timing and constituent weighting. Liquidity matters more in small caps; review average daily trading volume and bid-ask spreads on the ASX, since wider spreads erode returns. Also assess tracking error, as small cap ETFs can deviate more from their index due to illiquid underlying holdings.

Do small cap ETFs benefit from an illiquidity premium on the ASX?+

Historically, ASX small caps have delivered a long-term illiquidity premium over large caps, compensating investors for thinner trading volumes and higher volatility. However, this premium is inconsistent - small caps significantly underperformed during 2022's rising rate environment while outperforming during the 2020–2021 recovery. SMSF trustees should note that small cap ETFs themselves remain liquid and ASX-traded, even though the underlying companies may have lower individual liquidity, making ETFs a more practical way to capture this premium than buying individual micro-caps.

What are the risks and who do Small Cap ETFs suit?+

Small cap ETFs carry higher volatility, greater drawdown risk during market corrections, and concentration in cyclical sectors like mining and resources on the ASX. Distributions may carry less franking than large-cap ETFs since smaller companies often retain earnings for growth rather than paying fully franked dividends. These ETFs suit investors with a long time horizon (7+ years) seeking growth tilts as a satellite allocation alongside a large-cap core, and who can tolerate periods of significant underperformance relative to the ASX 200.

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