Vanguard has a long-standing reputation for issuing and managing some of the best ETFs in the market today. Investors looking to choose the ideal small-cap value ETF for their portfolio may have a hard time choosing between VIOV and VBR – both excellent options for exposing portfolios to the value side of the market.
But not to worry, this comprehensive VIOV vs. VBR comparison will provide all the information you need to make an informed decision. This comparative analysis touches on the investment strategies of both funds, composition and coverage, past performance, risk and volatility, and tax efficiency, among others.
If you are ready, join me in pitching the two biggest Vanguard small-cap value ETFs against each other.
Here are the key takeaways from this article:
- Small-cap stocks are stocks in the bottom 10% of the capitalization of the U.S. equity market. Value stocks are stocks with low valuations and slow growth. Small-cap value stocks combine both features.
- Small-Cap Value ETFs are designed to expose investors’ portfolios to small-cap stocks that are also grouped as value stocks.
- VIOV and VBR are two of the hundreds of ETFs out there that allow investors to access baskets of small-cap value ETFs.
- Vanguard issues and manages both funds, although VBR is newer and bigger than VIOV.
- VBR’s $21.6 billion worth of total assets under management is about 20x larger than VIOV’s $1.1 billion.
- Both VIOV and VBR perform similarly in terms of historical returns but differ in costs, investment strategies, diversification, and volatility levels.
- At 0.07%, VBR’s expense ratio is significantly lower (2x) than VIOV’s 0.15%.
- The two funds are great for investors looking to expose their portfolios to large blend equities while accruing decent returns.
- Choosing between both will depend on your financial profile, investment strategy, and plans.
VIOV vs. VBR – Get Familiar
Small-cap stocks occupy the bottom 10% of the capitalization of the U.S. equity market. Value stocks are stocks with low valuations and slow growth. They have low valuations because of low price ratios and high dividend yield. Their growth is slow because they have low growth rates for earnings, cash flow, book value, and sales. A small-cap value stock combines all of these features.
The Vanguard S&P Small-Cap 600 Value ETF (VIOV) and Vanguard Small-Cap Value ETF are exchange-traded funds (ETFs) designed to cover the small-cap value stocks of the equity market. They are both issued by Vanguard and expose investors to stocks of small companies that are less expensive and grow more slowly than other stocks of small companies.
Vanguard passively manages both VIOV and VBR. They also adopt the indexing investment approach, each tracking a different index. The advisor attempts to replicate the target index in each case by investing all, or substantially all, of the assets under management in the stocks that make up the index.
VBR is newer than VBR—the former was launched in September 2010, over six years after the launch of the former (January 2004). VBR is also the bigger fund, with 888 stocks in its portfolio, compared to VIOV’s 465. Both funds are suitable for both long-term and short-term investors looking to expose their portfolios to stocks of multiple small companies with higher value at a go.
Next, let’s compare the composition of each small-cap ETF and how they invest the funds under their management.
VIOV vs. VBR – Composition and Investment Strategy
Both funds are passively managed and adopt the indexing style of investment. However, they do not track the same index.
VIOV tracks the returns of the S&P Small Cap 600 Value index, which is considered a benchmark of the entire U.S. small-cap value stock returns. This index chooses value stocks from the S&P 600 collection, using specific characteristics like sales-to-price, earnings, book, value, and more.
VBR tracks the performance of the CRSP US Small Cap Value Index, which is also the underlying index of the fund. The index measures the investment return of small-capitalization value stocks. According to CRSP, the value securities in this index were chosen using factors like book-to-price, forward earnings-to-price, historic earnings-to-price, dividend-to-price ratio, and sales-to-price ratio.
Holdings and Exposure
As mentioned earlier, VIOV has fewer assets in its portfolio than VBR—465 and 888, respectively. The ten largest holdings and the weighted average of these top holdings differ in each case.
|1||Helmerich & Payne Inc (0.94%)||Quanta Services Inc (0.75%)|
|2||South Jersey Industries Inc (0.87%)||Molina Healthcare Inc (0.73%)|
|3||CVB Financial Corp (0.73%)||Atmos Energy Corp (0.58%)|
|4||First Hawaiian Inc (0.69%)||IDEX Corp (0.57%)|
|5||PBF Energy Inc Class A (0.68%)||Carlisle Companies Inc (0.56%)|
|6||Patterson-UTI Energy Inc (0.68%)||Bunge Ltd (0.56%)|
|7||Hostess Brands Inc Class A (0.67%)||Steel Dynamics Inc (0.53%)|
|8||Insight Enterprises Inc (0.67%)||Brown & Brown Inc (0.53%)|
|9||Mr. Cooper Group Inc (0.66%)||Ovintiv Inc (0.51%)|
|10||Agree Realty Corp (0.65%)||Howmet Aerospace Inc (0.49%)|
|% of total net assets||7.24%||5.81%|
It is important to note that the top ten holdings of VIOV account for about 7% of its total holdings, compared to about 6% in the case of VBR. Based on this, we can conclude that VBR is (slightly) more diversified than VIOV.
Moving on, the table below shows the sectors both funds cover and the extent of coverage in each of these sectors.
In terms of exposure, both VIOV and VBR portfolios cover all 11 sectors of the market, but the exposure to each sector differs. The biggest sectors in VBR’s and VIOV’s portfolios are Financial Services, Industrials, Consumer Cyclical, and Real Estate.
Assets Under Management
VBR is again the bigger fund when it comes to assets under management. The fund’s total net assets are worth over $45 billion compared to VIOV’s $1.3 billion. The average market cap of VIOV is $1.7 billion, while VBR has a much higher average market cap of $5.1 billion.
Have these significant differences in the number of holdings and amount of assets under management affected performance over the years? Let’s find out.
VIOV vs. VBR – Historical Performance
There is almost nothing to separate both funds in terms of performance over the past few years.
Total Annual Returns
VIOV’s total return in the last ten years is 9.37%. VBR has recorded a slightly higher return of 9.46% within the same period. The trend has been similar for the last five and three years. VIOV’s total returns over the previous five and three years are 3.90% and 4.96%, respectively. VBR’s total returns in the last five and three years are 4.41% and 5.68%.
From the above, it is clear that VBR is the better performer, but VIOV is not far behind.
Let’s assume you have invested $10,000 each into VIOV and VBR since the inception of VBR in 2010. From then till now, your $10,000 capital in VIOV would have grown to $33,880, indicating a total return of 256.17%. Similarly, your $10,000 in VBR would have shown a total return of 243.36%, translating to $32,556.
VIOV is the better performer in terms of portfolio growth when considering the period from 2010 till now.
NB: The comparison cannot go earlier than 2010 despite VIOV being around since 2004 because VBR was launched in 2010.
VBR has a higher dividend yield than VIOV. The current dividend yield of VBR is 2.22%, compared to VIOV’s 1.86%.
VIOV vs. VBR – Fees and Tax Efficiency
Another determining factor investors consider when choosing between two similar mutual funds is the fees and tax efficiency of such funds.
The Vanguard Small-Cap Value ETF (VBR) has the lower gross expense ratio of the two funds. At 0.07%, its expense ratio is significantly lower (2x) than the expense ratio of Vanguard S&P Small-Cap 600 Value ETF (VIOV), which is 0.15%. The relatively low expense ratio means both funds are tax-efficient and have minimal tracking errors.
Both funds have no strict minimum investment because they are exchange-traded funds (ETFs). Investors can decide to buy as much VBR and VIOV as they can afford at the current market prices.
VIOV vs. VBR – Risk and Volatility
Volatility is another aspect where we can compare VIOV and VBR but with nothing significant to separate them.
The volatility of VBR is 34.88%, which is about 2% higher than VIOV’s 33.23% volatility. It is almost impossible to choose the better fund between VBR and VIOV using volatility as a yardstick. However, you can rest assured that both funds do not attract any outrageous risk if you add them to your portfolio.
VIOV vs. VBR – ESG Ratings and Impacts
The ESG ratings of mutual funds and ETFs measure the resilience of these funds to long-term risks and opportunities arising from environmental, societal, and government (ESG) issues. Investors can make an informed decision based on these ratings.
For VIOV, 11% of the fund’s holdings have an MSCI ESG rating of AAA or AA, while 12% have B or CCC ratings. On the other hand, VBR has 17% of its holdings rated AAA or AA, with only 9% rated B or CCC. VBR has the better ESG ratings of the two funds, and investors can expect it to have more resilience to the abovementioned factors.
NB: The AAA and AA holdings are ESG leaders and are more resilient to ESG-related risks and opportunities than those rated B and CCC (ESG laggards).
It’s been an interesting comparative analysis between Vanguard S&P Small-Cap 600 Value ETF (VIOV) and Vanguard Small-Cap Value ETF (VBR). Both Vanguard ETFs are among the best and most popular small-cap exchange-traded funds (ETFs) in the present market. Both funds adopt the same indexing and passive style of management.
VIOV and VBR expose investors’ portfolios to small-cap value stocks, but they do so differently. VIOV invests in stocks of small-cap companies with value characteristics from the S&P 600 group, which is essentially the 600 best companies in the United States. On the other hand, VBR extends its range to every small-cap domestic stock in the US equity market, choosing the 888 small-cap stocks with the best value characteristics from the mix.
We have also established VBR as the bigger fund in terms of total assets under management. VBR’s $21.6 billion worth of assets under management is about 20x larger than VIOV’s $1.1 billion. This translates to more popularity for VBR than VIOV. VBR is also the better performer, although VIOV is not far behind when it comes to returns over time. Both funds also record a decent dividend yield, which is another major assessment point for most investors.
Aside from the size and popularity, the expense ratio is another significant difference between both funds for most investors. The significantly lower expense ratio of VBR (0.07%) compared to VIOV (0.15%) means investors can save more in fees and taxes by choosing the former over the latter.
VIOV vs. VBR – Which offers better exposure to Small-Cap Value stocks?
The better small-cap value ETF between VIOV and VBR will be a subjective call for every investor. For example, if you want cheaper exposure to the world of small-cap value, VBR would be your go-to. VBR also offers slightly more diversification and lower volatility than VIOV.
Unlike VBR, VIOV chooses stocks of small-cap companies with the best value characteristics among the S&P 600. VBR has a more extensive range by focusing on the entire market rather than choosing value options from the pool of the best 600 small-sized companies in the US. Therefore, investors who prefer remaining within the confines of the stocks of the biggest companies in the United States equity market will choose VIOV.
Finally, it is essential to note that every bit of information this article provides is for educational purposes only. They may not be considered or taken as financial or investing advice.