The Dimensional Targeted Value (DFAT) exchange-traded fund is expected to see strong returns in 2026 due to an improved earnings-growth outlook [1, 2].
This shift marks a potential pivot for U.S. equity markets as small-cap value stocks begin to outperform larger growth-oriented assets. Investors are increasingly looking toward these funds to capture a value premium that has historically been supported by academic research [3, 5].
Analysts project that small-cap earnings growth will hit 17% in 2026 [4]. This growth is expected to continue into the following year, with projections reaching 18% in 2027 [4]. These figures provide a critical catalyst for value-oriented funds like DFAT, which is managed by Dimensional Fund Advisors [1, 2].
Recent performance data indicates the fund has already gained momentum. DFAT reported a one-year total return of 25.58% and a five-year total return of 51.8% [1]. The fund maintains a 28 basis point expense ratio [1].
While DFAT shows strong growth, it faces competition from other small-cap vehicles. The AVUV fund has outperformed DFAT by 37.6% since its inception on Sept. 24, 2019 [6]. AVUV also recorded an 18% return year-to-date and 38% in trailing returns [8]. Similarly, the IJS fund delivered a 15% year-to-date return by screening out unprofitable small caps [8].
Despite this competition, the overall trajectory for the small-cap value segment remains positive. In early June, reports said that small-cap value had already outperformed growth by nine points in 2026 [7].
“Small-cap earnings growth is expected to hit 17% in 2026”
The projected earnings growth for small-cap companies suggests a rotation in investor preference from mega-cap growth stocks toward undervalued smaller firms. While DFAT offers a low-cost entry point based on academic value tilting, the superior performance of competitors like AVUV indicates that profitability screening remains a critical factor in maximizing returns within the small-cap sector.
