Exchange-traded funds make it easy to invest in a wide range of stocks through a single investment. That's useful in many niches of the market, and for small-cap stocks, it can be especially valuable, because trading in smaller companies can be more challenging than it is for larger stocks.
The Vanguard Group has a large suite of ETFs, and a surprising number focus on small-cap stocks. The following half-dozen Vanguard small-cap ETFs each bring something different to the mix, allowing investors to tailor their small-cap stock exposure in whatever way they see fit.
|
Small-Cap ETF |
Assets Under Management |
Expense Ratio |
5-Year Average Annual Return |
|---|---|---|---|
|
Vanguard Small-Cap (VB 0.54%) |
$18.9 billion |
0.06% |
14.6% |
|
Vanguard Small-Cap Value (VBR 0.37%) |
$11.3 billion |
0.07% |
15.3% |
|
Vanguard Small-Cap Growth (VBK 0.83%) |
$6.27 billion |
0.07% |
13.5% |
|
Vanguard FTSE All-World ex-U.S. Small-Cap (VSS 0.85%) |
$3.99 billion |
0.13% |
9.8% |
|
Vanguard Russell 2000 ETF (VTWO 0.97%) |
$1.07 billion |
0.15% |
14.2% |
|
Vanguard S&P Small-Cap 600 (VIOO 0.69%) |
$684 million |
0.15% |
15.8% |
Data source: Vanguard Group.
The biggest Vanguard small-cap ETFs
Vanguard's most popular small-cap ETFs focus on providing an all-inclusive set of small U.S. companies. The Vanguard Small-Cap ETF tracks the CRSP U.S. Small Cap Index. This benchmark isn't nearly as popular as some other small-cap indexes, but it uses a methodology that leads to similar exposure.
The ETF has more than 1,400 stocks in its portfolio, with the top 10 holdings making up just 3% of the portfolio. More than a quarter of the fund is invested in financial stocks, and industrial stocks represent another 20% of the portfolio. Consumer and technology stocks also get double-digit percentage allocations within the fund.
The Vanguard small-cap growth and value ETFs divide those 1,400 holdings into two groups based on valuation and growth factors. The value fund has almost 850 stocks, while the growth fund holds just under 700. Because of the methodology that CRSP uses, some stocks can be shared between both the growth and value ETFs, which is why the total of the holdings within two style-based ETFs exceeds the number of stocks in the Vanguard Small-Cap ETF. Interestingly, the sector allocations of the two style-based funds are relatively similar, with only a small bias toward value within the financial sector.
Image source: Vanguard Group.
Going abroad for small-cap exposure
Vanguard also has an international small-cap ETF. The fund specifically avoids U.S. stocks, instead holding about 40% of its assets in developed markets in Europe, 30% in the Pacific region, 20% in emerging markets, and the remainder in Canada. Japan, Canada, and the U.K. are the only countries to have more than 10% of the fund's assets allocated to stocks based there.
The fund owns almost 3,500 stocks, and industrials and consumer stocks are the two largest sectors, with technology, materials, and financials close behind. Performance has been weaker abroad than for U.S. stocks, largely because of the strength of the U.S. dollar against foreign currencies, but the diversification available from the international small-cap ETF is useful.
Tapping into more popular indexes
Finally, Vanguard aims to offer low-cost products, but it's also willing to admit when investors want the option to pay up for different exposure. The Russell 2000 and the S&P SmallCap 600 are two of the most popular benchmarks for small-cap investors, so having ETFs that track them is useful for some investors.
Vanguard will nevertheless be pleased to see that its most popular products have consistent returns with the more popular small-cap indexes. That has driven more money into the CRSP-tracking U.S. ETFs, and fewer people have taken Vanguard up on its offer at more traditional tracking. The returns indicate that it likely makes little sense to pay the slightly higher fees to get the more popular indexes.
Small-caps for strength
Many investors focus solely on large-cap stocks, but small companies have greater growth prospects and can be big contributors to your overall performance. As low-cost options, Vanguard's small-cap ETFs cover the universe of small companies and are worth a closer look to help you diversify your portfolio.
