Yahoo Finance The 10 Best Small-Cap Value ETFs
Small-cap stocks with value built in.
When you think of small-capitalization stocks, you think of growth. But the small-cap value stocks can be great, too. MarketWatch's Paul Merriman wrote last year that based on 87 years of performance data, small-cap value outperformed small-cap blend, large-cap blend and large-cap value stocks. The money stat: "From 1928 through 2014, U.S. small-cap value stocks turned in a compound annual return of 13.6 percent." That beat the Standard & Poor's 500 index by 3.8 percentage points. The exchange-traded fund world is loaded with ways to invest in small-cap value. We look at the top 10, as ranked by U.S. News & World Report as of this date.
#10: WisdomTree SmallCap Dividend Fund (DES)
DES is listed as a small-cap dividend fund, not a small-cap value fund, but remember: Dividends can actually be used as a measure of value. DES compiles its portfolio by taking out the 300 largest companies in the dividend-weighted WisdomTree Dividend Index, then investing in the smallest 25 percent of what's left over. Here, top holdings include natural gas play Targa Resources Corp. (TRGP) and renewable energy company Pattern Energy Group (PEGI). The nice thing about DES is that it pays out a monthly dividend, rather than quarterly. Based on its past year's payouts, DES yields 2.7 percent.
Expenses: 0.38 percent, or $38 annually for every $10,000 invested
#9: Guggenheim S&P SmallCap 600 Pure Value ETF (RZV)
The RZV invests in stocks in the S&P SmallCap 600 -- an index of U.S. companies between $400 million and $1.8 billion in market cap that meet some basic financial viability conditions -- that exhibit various value characteristics. For instance, RZV's 149 stocks feature an average price-earnings ratio of less than 13, and on average trade at 86 percent of book. That's a pair of attractive value stats. RZV also is a pretty balanced fund that weights six sectors in double digits. Currently, Century Aluminum Co. (CENX) and pawn specialist EZCorp (EZPW) lead RZV's top holdings.
Expenses: 0.35 percent
#8: PowerShares S&P SmallCap Low Volatility Portfolio (XSLV)
Value and low volatility don't necessarily go hand in hand. In fact, some deep-value speculation can be just as risky as chasing a hot growth opportunity. Here, XSLV targets the 120 S&P SmallCap 600 stocks that have exhibited the lowest price volatility over the past 12 months, then weights those stocks based on volatility (the least volatile stocks get the heaviest weights). The result? XSLV's value characteristics aren't as appealing as some of its brethren, but it does feature a 0.8 beta and a nearly 2 percent dividend yield.
Expenses: 0.25 percent
#7: iShares S&P Small-Cap 600 Value ETF (IJS)
The IJS is another one of several funds based off the S&P SmallCap 600. Here, IJS' benchmark is the S&P SmallCap 600 Value Index, which results in a few differences from RZV. Financials are the top sector at 22 percent of the fund -- 11 percentage points more than their weighting in RZV. IT is a little heavier, too, while industrials, consumer discretionary, materials and energy aren't as thick in IJS. iShares' fund also is far broader, at 457 stocks, but P/E (19) and P/B (1.65) are richer.
Expenses: 0.25 percent
#6: iShares Morningstar Small-Cap Value ETF (JKL)
Investors might be better off with a different iShares product -- the JKL -- which is tethered to the Morningstar Small Value Index. The index targets stocks with low-value metrics like P/B, P/E, price-sales and price-cash flow. JKL features several advantages over IJS, including a lower P/E (15) and P/B (1.4), and a sweeter dividend (2.4 percent to IJS' 1.3 percent) that counters JKL's slightly higher expenses. JKL also is very broad at nearly 250 stocks, but investors wary of too much exposure to financials should note that the ETF has a nearly 30 percent weight in the sector.
Expenses: 0.3 percent
#5: SPDR S&P 600 Small Cap Value ETF (SLYV)
The SLYV and IJS are essentially the same fund. SLYV holds just one more stock, and the sector weightings are virtually identical; financials represent a slightly higher percentage of the SPDR ETF's holdings. That said, SLYV has outperformed IJS over just about every meaningful period, and a large part of this is the 10-basis-point difference in fund expenses. Really, a decision among this, IJS and Vanguard's version of the fund, VIOV, could just come down to a combination of expenses and whether one of the funds is commission-free through your brokerage.
Expenses: 0.15 percent
#4: Vanguard S&P Small-Cap 600 Value ETF (VIOV)
Vanguard's VIOV is the last of the S&P SmallCap 600 Value Index-tracking ETFs, and performance-wise, it falls somewhere in the middle of SLYV and IJS, just like its expense ratio of 0.2 percent. VIOV is the youngest of the funds, coming to market in 2010 versus 2000 for the other two. But it has already sported a couple of years of slight outperformance over the SLYV. VIOV is slightly heavier in financials and information technology than the other two funds, but otherwise, this is just another clone.
Expenses: 0.2 percent
#3: Vanguard Russell 2000 Value ETF (VTWV)
If you're already following Merriman's advice in seeking out small-cap value, you might consider his recommendation: the VTWV. This is about as broad as broad gets; VTWV is invested in the 1,362 value stocks in the Russell 2000. Most notably, VTWV's holdings feature a lower average P/B (1.4 vs. 1.7) and a higher earnings growth rate (5.8 percent to 4.1 percent). The big thing to consider is how bullish you are on financials' prospects going forward. VTWV has a lopsided 41.3 percent weight in financials and real estate investment trusts, and just two other sectors enjoy double-digit weights.
Expenses: 0.2 percent
#2: Vanguard Small-Cap Value ETF (VBR)
Vanguard's cheapest small-cap offering invests in an index we haven't seen yet -- the CRSP US Small Cap Value Index. And while you're technically getting small-cap exposure with value characteristics, VBR's holdings are bigger and richer than those of the other two Vanguard ETFs. Average market cap of $3.2 billion is more than double that of VIOV and VTWV, average P/E is around 25 and P/B is nearly 2. It's also thick in financials (30 percent) and industrials (20 percent). But VBR's robust construction has resulted in periods of outperformance compared to VIOV and VTWV, "expensive" though it might be.
Expenses: 0.08 percent
#1: iShares Russell 2000 Value ETF (IWN)
IWN shares much in common with its Vanguard counterpart, the VTWV. Both invest in more than 1,350 stocks, both feature similar value characteristics and both feature the same gross overweight in financials -- and well they should, as they track the same index. IWN does have a slightly higher concentration in tech stocks, which is countered by slightly lower weightings in financials, industrials and a couple other sectors. But IWN gets the nod for its past performance, which is stronger than VTWV over the past one-, three- and five-year periods.
Expenses: 0.25 percent
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