This stock ETF is already up 12% in 2026. Is this a megatrend to watch?

There are plenty of investment narratives already dominating headlines in 2026. Gold is up 8.3% and ASX Materials are up 8.1% 

But there's one story that's still flying under the radar, despite quietly outperforming the headline-grabbers. 

US small and mid caps have started 2026 with a bang, as investors bet on stronger-than-expected US economic and earnings growth and a rotation away from the big tech stocks.

The First Trust RBA American Industrial Renaissance ETF (NYSE: AIRR) tracks a basket of small and mid-cap US companies across infrastructure, banking, manufacturing and transport, with a 90% weighting to Industrials.

It is already up 11.84% in 2026, and returned an impressive 27.92% in 2025, well ahead of both the S&P 500 (17.88%) and Russell 2500 (11.91%) and is now being recommended to investors by the Bank of America.

While the S&P 500 has edged slightly higher in 2026 (up 1.2%) despite rising geopolitical pressures, the Mag 7 and other US mega caps are off to a slower start. 

The ETFShares ETFS Magnificent 7+ ETF (ASX: HUGE), which tracks the 10 largest companies on the Nasdaq, is down 1.7% in the year to date. 

It means US small and mid caps are already putting a bit of distance between themselves and their behemoth cousins. 

The thesis is simple. Mostly it is a bet on US economic strength in 2026, as favourable macro conditions and the looming mid-term elections suggesting a constructive year for US economic growth. 

According to Goldman Sachs Research, the US economy is forecast to grow 2.8% on a full-year basis in 2026, and EPS growth for the S&P 500 to reach 12%.

As Goldman Sachs Research argues, "In early 2026, accelerating US economic growth alongside Fed easing should boost cyclical sectors of the equity market. Those sectors are likely to include stocks exposed to middle-income consumers and firms tied to non-residential construction."

For Australian investors, there's likely to be a similar opportunity on the ASX. As Ausbil's David Lloyd wrote for Livewire last week: 

"We believe the stronger US economy is providing opportunities for Australian small and mid-cap equity investors in 2026. US macro-economic factors could support earnings growth for Australian companies with quality US exposures."

More broadly, Ausbil is forecasting FY26 EPS growth of 14% for ASX mid cap stocks and 29.1% for small caps, and believes a stronger US economy will drive a cyclical uplift for both US and Australian mid cap stocks.

Yarra Capital Management's Michael Steele suggested ASX small caps "enter the year with strong tailwinds, underpinned by accelerating earnings growth, attractive valuations, and supportive macro conditions."

It was a theme also echoed by Wilson Asset Management's Anna Milne and Yarra Capital Management's Joel Fleming in identifying the biggest opportunities in markets in 2026 as part of Livewire's Outlook Series.  

As Milne argued, "we expect an acceleration in the US consumer and maybe a slight dampening in the Australian consumer."

"So how do we think about that from an ASX perspective? We're looking at Australian companies with US cyclical exposures or exposures to the US consumer."

According to Fleming, "2025 was a good start of what should be a multi-year period just in terms of that rotation occurring - large caps starting to come back down into small caps and hopefully through time back into micros."

"Investors are starting to look at parts of the market they've been ignoring for a couple of years. There's some really good value on offer - dynamic companies, nimble companies, growing companies, good valuations."

For those looking for an alternative growth story to the resources and commodities resurgence or a rotation away from AI and US big tech, it could prove a happy hunting ground this year.