VB vs. IJR: Vanguard Small Cap ETF Delivers Higher Returns With a Lower Dividend Yield

Vanguard Small-Cap ETF (NYSEMKT:VB) and iShares Core SP Small-Cap ETF (NYSEMKT:IJR) offer broad small-cap U.S. equity exposure with similar costs and risk, but VB features a wider portfolio and slightly higher recent returns.

Both VB and IJR are designed for investors seeking low-cost, diversified access to the U.S. small-cap stock market. This comparison looks at how these two popular funds differ in cost, performance, diversification, and sector exposures, helping investors decide which may better fit their small-cap allocation.

Snapshot (Cost & Size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

VB is marginally more affordable on fees, with an expense ratio of 0.05% compared to IJR’s 0.06%. Yield is nearly identical, with IJR offering a 1.4% payout and VB at 1.3%, so neither stands out on income.

Performance & Risk Comparison

What's Inside

VB tracks a broad CRSP U.S. small-cap index and currently holds 1,357 stocks, making it one of the most diversified small-cap ETFs on the market. The portfolio tilts toward industrials (19%) and technology (17%), with healthcare at 13%. Its largest positions, such as Insmed Inc (NASDAQ:INSM), Comfort Systems USA Inc (NYSE:FIX), and SoFi Technologies Inc (NASDAQ:SOFI), each account for less than 1% of assets. With 22 years of history and no leverage or ESG filters, VB aims for broad, low-turnover small-cap exposure.

IJR also pursues U.S. small-cap stocks, but with a slightly narrower focus—632 holdings and top weights in Arrowhead Pharmaceuticals Inc (NASDAQ:ARWR), Lkq Corp (NASDAQ:LKQ), and Armstrong World Industries Inc (NYSE:AWI). Sector allocations are similar, though IJR leans more into financial services (18%) and industrials (16%), with technology at 15%. Both funds maintain broad diversification and avoid specialized quirks.

For more guidance on ETF investing, check out the full guide at this link.

What This Means For Investors

How should potential investors view Vanguard Small-Cap ETF (VB) and iShares Core SP Small-Cap ETF (IJR)? Here's how they stack up.

First, VB holds about twice as many stocks as its rival -- 1,357 versus 632. As a result, VB offers investors greater diversification. Yet, despite this greater diversification, VB has experienced roughly the same volatility as IJR. Both funds have seen a max drawdown over the last five years of approximately 28%.

Turning to fees, VB offers a very slim advantage over IJR. VB has an expense ratio of 0.05%, while its rival's expense ratio is 0.06%. Meanwhile, in terms of dividend yield, both funds sport very similar dividend yields, with IJR having a dividend yield of 1.4%, and VB having a 1.3% yield.

Lastly, there's performance. On that front, both funds have underperformed the S&P 500 over the last five years. However, VB has generated a higher total return (43%), while IJR has generated a total return of 38%.

In sum, these two small cap funds are quite similar. Nevertheless, there are some differences that could tip the scales in favor of one over another. VB has a stronger historical track record, along with slightly lower fees. Meanwhile, IJR has a marginally higher dividend yield, which could matter to income-seeking investors.

Glossary

ETF: Exchange-traded fund that holds a basket of securities and trades like a stock.
Expense ratio: Annual fund operating costs expressed as a percentage of the fund’s average assets.
Dividend yield: Annual dividends paid by a fund divided by its current share price, shown as a percentage.
Total return: Investment performance including price changes plus all dividends and distributions, assuming reinvestment.
Beta: Measure of an investment’s volatility compared with the overall market, often the S&P 500.
AUM: Assets under management; the total market value of all assets a fund manages.
Max drawdown: The largest peak-to-trough decline in value over a specific period, showing worst historical loss.
Small-cap: Companies with relatively low stock market value, typically smaller and more volatile than large-cap firms.
Diversification: Spreading investments across many securities or sectors to reduce the impact of any single holding.
Sector allocation: How a fund’s assets are distributed across different industries, such as technology or healthcare.
Index: A rules-based basket of securities used to track or benchmark a segment of the market.
Leverage (in funds): Use of borrowed money or derivatives to amplify returns, which also increases potential losses.

Jake Lerch has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Comfort Systems USA, Vanguard Index Funds - Vanguard Small-Cap ETF, and iShares Trust - iShares Core S&P Small-Cap ETF. The Motley Fool recommends LKQ. The Motley Fool has a disclosure policy.