The Vanguard Morningstar Small-Cap ETF (NYSEMKT:VB) and the iShares Morningstar Small-Cap ETF (NYSEMKT:ISCB) represent two low-cost avenues into the small-cap market, distinguished primarily by their vast difference in assets under management.
U.S. small-capitalization stocks are often favored by investors looking to capture the growth potential of younger companies before they reach large-cap status. While these stocks can be more volatile than their blue chip counterparts, the diversification offered by exchange-traded funds helps mitigate individual company risk while maintaining exposure to the broader asset class.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The Vanguard fund is slightly more affordable with a 0.03% expense ratio compared to 0.04% for its iShares counterpart. While both funds are competitive on cost, they differ significantly in their total assets under management.
Performance & risk comparison
What’s inside
The Vanguard aims for similar broad coverage by tracking the CRSP U.S. Small Cap Index, holding 1,306 stocks. Its sector weights tilt toward industrials at 20%, technology at 18%, and healthcare at 13%. Top holdings include Credo Technology Group Holding at 0.54%, Jabil at 0.49%, and Revolution Medicines at 0.45%.
The fund was also launched in 2004. Vanguard Morningstar Small-Cap ETF has paid $3.61 per share over the trailing 12 months, which, at its recent ~$308.54 share price, works out to a 1.2% yield.
The iShares targets a broad range of U.S. small-capitalization companies. Its portfolio currently features 1,575 holdings, including industrials at 17%, financial services at 17%, and healthcare at 15%. Its largest positions include Okta at 0.38%, Atlassian at 0.37%, and Guardant Health at 0.32%.
The fund was launched in 2004. iShares Morningstar Small-Cap ETF has paid $0.95 per share over the trailing 12 months, which, at its recent ~$77.36 share price, works out to a 1.2% yield.
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Which looks like the better buy?
There’s not much to distinguish these two small-cap ETFs. Both offer similar dividend yields, expense ratios, beta, and returns.
Vanguard has outperformed slightly over the trailing five-year period, but iShares wins on trailing 12-month returns — but just barely. Both funds have similar sector allocations and numbers of holdings. Vanguard holds over 1,300 stocks, while iShares currently has over 1,500.
The only measure in which these funds differ materially is net assets. Vanguard is significantly larger, with over $180 billion in net assets. The iShares has about $289 million. This provides investors in the Vanguard fund with much greater liquidity.
Given the close similarities between these funds on every other measure, the difference in their asset size is the tiebreaker. That makes the Vanguard ETF the overall better small-cap ETF to buy.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Atlassian, Guardant Health, and Okta. The Motley Fool has a disclosure policy.
VB vs ISCB: Which Small-Cap ETF Offers Better Value? was originally published by The Motley Fool
