Simple Fund Analysis – Vanguard Small Cap Value ETF (VBR)

   

simple fund analysis vanguard money man

Lately I’ve been interested in diversifying more. Diversifying of course means NOT putting all your eggs in one basket. Yes I admit for a long-time I was doing this (and actually it served me well). Instead of diversifying into smaller-cap, pretty much my whole portfolio consisted of large-cap, mature, dividend paying stocks. But only a couple years ago I thought to myself why am I being so safe? I’m still young, have many many years till retirement so I have time on my side.

 

So the risk was that I wasn’t taking on, well, enough risk. In other words, I was missing out on the opportunity for potentially higher gains for which the possibilities are greater when you are invested in a small or mid-cap organization or fund. So recently I thought I could take on the risk of investing into the small-cap space and at the same time manage the risk by choosing a small-cap diversified fund. Enter Vanguard Small Cap Value ETF (symbol – VBR). As I disclose in my other analyses posts, I am not a stock/fund/investment analyst professional guy dude making millions person. Also, I’m not being paid by Vanguard to sell any of their funds, even though I made Vanguard a link – just did that to make it easier cause I’m a nice guy like that 🙂

 

VBR History

VBR’s inception date was 1/26/2004. So it’s been around for well over 10 years, which is one of my personal requirements – longevity. In that time, it has gone up from ~$50 to ~$123; an increase of about 2 ½ times from its starting price. It started paying a divided at the end of 2004 on a semi-annual basis, but for the past year changed the dividend payout to quarterly.  Just to be fair, a couple of comparable funds are: iShares Russell 2000 ETF – IWM whose inception was since 2000 and iShares Core S&P Small-Cap ETF iShares Core – IJR also around since 2000.

 

VBR Data

Per Vanguard’s website, VBR “seeks to track the performance of the CRSP US Small Cap Value Index, which measures the investment return of small-capitalization value stocks”. CRSP is the symbol for crispy fried chicken (no not really). It’s actually The Center for Research in Security Prices, who provide research data for ETFs and other investments.

 

Per the Google Finance chart (click to expand), VBR – in red is tracking CRSP’s index – in blue rather well for the past year.

Google Finance VBR

 

So what’s in the fund anyway? Well, for five of the top 10 holdings, and by the way all top 10 only make up less than 5% of the total net assets anyway include (1) CDW Corporation – Technology, (2) Teleflex Incorporation – Specialty Medical Devices, (3) UGI Corporation – Liquefied Propane Gas Distributor, (4) Atmos Energy – Natural Gas Distributor, and (5) CommScope Holding Co. Inc. – Communications. But all this doesn’t mean much anyway, since as of March 31, 2017 there are 828 companies in the fund! The highest weightings are in Consumer Services – 10.50%, Financials – 30.30%, and Industrials – 20.70%.

 

Is VBR Right For You?

If you’re like me, VBR may be a good choice for you. Investopedia has got me figured out as it says “VBR can add value to their clients’ portfolios by generating potentially high returns with diversified exposure to the small-cap equity market”. This is pretty much exactly what I mentioned in my introduction above.  The article later mentions a competitor of VBR, which is the iShares Russell 2000 Value ETF. Of course, it tracks the Russell 2000 Index and it’s been around since 2000 so four years more mature than VBR I suppose. So guess what SMM did y’all? Yes I compared both of them over a 5 years period and found that for the past several years, VBR’s performance has been better at around 20% (BAM. See in the Google Chart (click to expand) below for yourself – VBR in red and IWN in blue):

 

From my limited initial research, it seems like VBR could be a good buy. Its value has increased over-time more than other leading small-cap value ETFs, has been around for a solid 10+ years and per Vanguard in that time has averaged an annual return of over 9% and, it has lower fees with an expense ratio of 0.07% (by the way IWN’s expense ratio is 0.25%). I really should not be mentioning this last because everywhere I have read Vanguard is most known for its low cost funds. This expense ratio is one of the lowest I have seen. And this means more dividend money in our pockets for getting the same or better performance than other small cap value funds that are charging more. No wonder why VBR has over $26.7 billion in net assets.

 

Do you all have any thoughts on this ETF (pros and/or cons and/or risks)? Please share below.

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I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!

 

Simple Money Man (SMM)

6 Comments

  1. Nice post! I agree VBR sounds like a great way to diversify. What I really like about this fund is the low expense ratio relative to the returns. Based on the chart above and your explanation it looks like VBR generated higher returns with lower costs for its investors than IWN. We have also be looking to diversify our portfolio and I am going to add VBR to our list to do some additional research. Thanks for sharing!

    • Glad it was useful! There are so many funds out there it can get confusing and overwhelming. It’s nice to start with a baseline somewhere and why not go for value and low cost and diversity…I want it all! lol

  2. It makes sense to get more exposure to small cap stocks. In my 401k, I’m putting about 20% towards small cap stocks because I’m in the accumulation phase of my investing career. Over the long term, small cap stocks have performed better than large caps, so any additional performance is good for me.

    Nice analysis, looking forward to future articles SMM

    • Thank you! I’m in the same boat. With so much time left until retirement (kind of bittersweet I suppose) we are able to take on more risk and if things don’t exactly pan out, have time to recover as well. At the same time keep diversified with a reputable fund.

  3. It looks really interesting. I have a tendency to go with VTSAX as it has all the stocks in the index and I don’t have to worry about diversifying my portfolio this way. But if you have a different asset allocation I could definitely see VBR being worthwhile.

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