Vanguard Small-Cap ETF vs JPMorgan BetaBuilders Compared

Investors evaluating JPMorgan BetaBuilders U.S. Small Cap Equity ETF (NYSEMKT:BBSC) and Vanguard Morningstar Small-Cap ETF (NYSEMKT:VB) may weigh the lower costs and higher liquidity of the Vanguard fund against the J.P. Morgan fund's slightly higher recent total returns.

Broad small-cap exposure can serve as a powerful diversifier in a long-term portfolio, often moving independently of larger equity peers. These two ETFs provide access to smaller U.S. companies but differ in their management costs and portfolio breadth. Understanding these nuances is essential for investors choosing between these two passive strategies.

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.

Vanguard Morningstar Small-Cap ETF is the more affordable option with a 0.03% expense ratio, while JPMorgan BetaBuilders U.S. Small Cap Equity ETF charges 0.09%. This cost gap can impact long-term compounding. Additionally, the Vanguard fund offers a higher payout with a 1.3% dividend yield.

Performance & risk comparison

What's inside

Vanguard Morningstar Small-Cap ETF targets a wide array of small companies, currently holding 1,357 securities to provide broad market coverage. Its portfolio tilts toward industrials at 20%, technology at 16%, and healthcare at 14%. Top holdings include Natera at 0.72% and Twilio at 0.57%. It was launched in 2004. Vanguard Morningstar Small-Cap ETF has paid $3.70 per share over the trailing 12 months, which on its recent ~$287.2 share price works out to a 1.3% yield.

JPMorgan BetaBuilders U.S. Small Cap Equity ETF manages a more concentrated list of 847 holdings, focusing on firms between the 95th and 99th percentiles of market capitalization. It allocates 17.6% to technology, 16.9% to healthcare, and 16.8% to financial services. Its largest positions include Semtech at 0.55% and Jfrog at 0.42%. It was launched in 2020. JPMorgan BetaBuilders U.S. Small Cap Equity ETF has paid $0.9 per share over the trailing 12 months, which on its recent ~$84.9 share price works out to a 1.1% yield.

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Which looks like the better buy

There are a number of benefits to adding small-cap companies to your portfolio. These companies have high upside potential, as they are still early in their growth stories and may be poised to either take off or be acquired by a larger company. They can also help diversify a portfolio away from the market's leaders and leading market sectors, and they often trade at attractive valuations.

Both of these small-cap-focused ETFs look like solid contenders for investors looking to gain exposure to some of the market's smallest companies. With more than 1,000 holdings, the Vanguard fund may appeal to investors who are looking for even broader exposure and a heavier focus on industrials. Investors looking for a more concentrated play on the smallest companies on the market may be more drawn to the J.P. Morgan fund, which has a heavier focus on financial stocks, though it does charge a slightly higher expense ratio, which could eat into your returns long-term.

Sarah Sidlow has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Natera and Twilio. The Motley Fool recommends JFrog. The Motley Fool has a disclosure policy.