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Should Vanguard SmallCap Value ETF (VBR) Be on Your Investing Radar?

The Vanguard SmallCap Value ETF (VBR) was launched on 01/26/2004, and is a passively managed exchange traded fund designed to offer broad exposure to the Small Cap Value segment of the US equity market.

The fund is sponsored by Vanguard. It has amassed assets over $24.90 billion, making it the largest ETFs attempting to match the Small Cap Value segment of the US equity market.

Why Small Cap Value

Small cap companies have market capitalization below $2 billion. They usually have higher potential than large and mid cap companies with stocks but higher risk.

Value stocks have lower than average price-to-earnings and price-to-book ratios. They also have lower than average sales and earnings growth rates. When you look at long-term performance, value stocks have outperformed growth stocks in nearly all markets. But in strong bull markets, growth stocks are more likely to be winners.

Costs

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.07%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.95%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Financials sector--about 22.70% of the portfolio. Industrials and Consumer Discretionary round out the top three.

Looking at individual holdings, Slcmt1142 accounts for about 0.82% of total assets, followed by Quanta Services Inc. (PWR) and Molina Healthcare Inc. (MOH).

The top 10 holdings account for about 5.97% of total assets under management.

Performance and Risk

VBR seeks to match the performance of the CRSP U.S. Small Cap Value Index before fees and expenses. The CRSP U.S. Small Cap Value Index measures the investment return of small-capitalization value stocks.

The ETF has lost about -5.04% so far this year and is up about 2.16% in the last one year (as of 12/02/2022). In the past 52-week period, it has traded between $143.40 and $182.58.

The ETF has a beta of 1.14 and standard deviation of 30.83% for the trailing three-year period, making it a medium risk choice in the space. With about 892 holdings, it effectively diversifies company-specific risk.

Alternatives

Vanguard SmallCap Value ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, VBR is a great option for investors seeking exposure to the Style Box - Small Cap Value segment of the market. There are other additional ETFs in the space that investors could consider as well.

The iShares S&P SmallCap 600 Value ETF (IJS) and the iShares Russell 2000 Value ETF (IWN) track a similar index. While iShares S&P SmallCap 600 Value ETF has $7.22 billion in assets, iShares Russell 2000 Value ETF has $12.64 billion. IJS has an expense ratio of 0.18% and IWN charges 0.23%.

Bottom-Line

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Vanguard SmallCap Value ETF (VBR): ETF Research Reports

Quanta Services, Inc. (PWR) : Free Stock Analysis Report

Molina Healthcare, Inc (MOH) : Free Stock Analysis Report

iShares Russell 2000 Value ETF (IWN): ETF Research Reports

iShares S&P SmallCap 600 Value ETF (IJS): ETF Research Reports

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Zacks Investment Research