4 ETFs to Capitalize on the Great Market Rotation

Wall Street is currently witnessing the “Great Rotation,” with investors shunning hot technology stocks in favor of smaller companies and other defensive sectors. The combination of “AI capex fatigue,” a resilient U.S. economy, and chances of a less-dovish Fed in the near term has led to the rotation in the market.

Inside the Emergence of Great Rotation

The five largest U.S. cloud and AI infrastructure providers – Microsoft, Alphabet, Amazon, Meta, and Oracle – have planned to spend between $660 billion and $690 billion combined capital expenditure in 2026, nearly doubling 2025 levels, as quoted on Futurum.

Meanwhile, pure-play AI players like OpenAI and Anthropic are seeing strong revenue growth, but their combined revenues are nowhere near the massive infrastructure spending made on them, per the same Futurum source.

No wonder, investors have started demanding clearer returns on massive spending after two years AI capex euphoria; Second, higher interest rates — with the 10-year Treasury yield over 4% — are pressuring long-duration growth valuations, pushing investors toward defensive and value sectors that normally fare better in higher-rate environments.

Third, broadening market breadth, with about 65% of S&P 500 stocks outperforming the index – a level not seen in years, shows leadership expanding beyond mega-cap tech (read: A "Great Rotation" Is Underway: Zacks FEB 2026 Strategy).

As a result, the State Street SPDR Portfolio S&P 500 Value ETF SPYV has added about 1.1% over the past one month (as of Feb. 12, 2026) versus a 1.8% decline in theState Street SPDR S&P 500 ETF Trust SPY. Meanwhile, growth stocks severely underperformed with State Street SPDR Portfolio S&P 500 Growth ETF SPYG slumping 4.3% during the same timeframe.

ETFs to Play

Given the great rotation, some exchange-traded funds (ETFs), which were depressed last year, have started to gain momentum this year. We have highlighted them below:     

State Street Cons Staples Sel Sec SPDR Inc ETF XLP

The fund has gained about 10% over the past one month (as of Feb. 12, 2026), breezing past SPY. XLP rose 9.6% over the past one year, down from the 11.7% one-year uptick in SPY. Staples companies and stocks are viewed as non-cyclical and tend to perform well even in an uncertain economy.  

First Trust Utilities AlphaDEX Fund FXU

The ETF has gained 7.8% over the past month. Utilities act as a defensive sector. Moreover, to support the power-hungry AI boom, utilities have received a leg up in today’s environment. The fund has jumped about 22.9% over the past one year.

Vanguard High Dividend Yield ETF VYM

Seeking shelter in high-income ETFs also makes sense. In a volatile market, dividend ETFs normally come to the rescue. The hunt for dividends in the equity market is always on, irrespective of how the market is behaving. The ETF VYM has added about 4.7% over the past one month. The fund yields 2.24% annually.

State Street SPDR Portfolio S&P 600 Small Cap ETF SPSM

Small caps have outperformed large-caps so far this year, supported by domestic focus, dollar strength and improving earnings outlook.The S&P SmallCap 600 index is projected to return to positive growth in 2025, with double-digit earnings expansion expected over the next two years, per Zacks Earnings Trends issued on Feb. 4, 2026. The SPSM ETF has added 2.3% over the past one month (read: 3 Sector ETFs & Stocks to Play in the Small-Cap Spectrum).

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This article originally published on Zacks Investment Research (zacks.com).

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