So much day-to-day attention in the stock market is focused on the stocks of big companies. Whether it's the S&P 500 index (^GSPC -0.75%) or the artificial intelligence (AI) stocks of the tech-heavy Nasdaq-100 index, it might be easy for investors to overlook the investment opportunities of smaller companies.
But small-cap stocks might be having a moment. And that moment could lead to long-lasting momentum. Recent Vanguard research predicts that U.S. small-cap stocks will outperform U.S. large-cap and growth stocks over the next 10 years. Other research from Fidelity says that U.S. small caps are among the cheapest valuations (relative to large caps) since 1990.
There's no guarantee that any stock, sector, or company size will outperform the market. But if you're intrigued by the potential of small-cap stocks, the Vanguard Morningstar Small-Cap ETF (VB -0.91%) can help you buy into this trend. Let's look at this small-cap ETF and see if it's a good choice for your portfolio.
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Vanguard Morningstar Small-Cap ETF (VB): 3 years of 15.8% annualized returns
The Vanguard Morningstar Small-Cap ETF is a low-cost index fund that holds 1,306 stocks of small U.S. companies with a median market cap of $10.9 billion. The fund charges an ultra-low expense ratio of 0.03%. This small-cap ETF has delivered average annual returns of 10.99% over the past 10 years, 7.3% over the past five years, and 15.8% over the past three years.
NYSEMKT: VB
Key Data Points
If you're worried that the S&P 500 is too top-heavy with major tech names, this fund offers a more diversified mix of industries. The fund's top sector holdings are:
- Industrials: 20.4% of the fund
- Technology: 15.4%
- Healthcare: 13.6%
- Financials: 12.7%
- Consumer discretionary: 12.6%
Why buy small-cap stocks
America's biggest companies don't always deliver America's biggest stock market gains. Many investors are currently nervous about a possible tech sell-off or stock market crash. The S&P 500 has been on a great run for the past 15 years, but it might not last forever. If you want to diversify your portfolio, small-cap stocks might be a good way to add a wider range of sectors and companies while reducing the risk of an AI bubble turning into a bust.
The Vanguard Morningstar Small-Cap ETF ranks as one of the best small-cap ETFs. It's well diversified, charges incredibly low fees, and might be worth adding to a portfolio for the next 10 years (or more) of long-term investing.
