VBR vs. ISCV: Which Small-Cap Value ETF Is the Better Buy for Investors?

Both the Vanguard Small-Cap Value ETF (NYSEMKT:VBR) and the iShares Morningstar Small-Cap Value ETF (NYSEMKT:ISCV) target U.S. small-cap value stocks, but they track different indexes and show subtle differences in sector allocations and holdings.

VBR stands out for its massive assets under management and trading liquidity, while ISCV offers a marginally lower expense ratio and broader stock exposure. This matchup looks at cost, performance, risk, and portfolio makeup to help clarify which may appeal more to investors seeking diversified value in the small-cap space.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

ISCV comes in slightly more affordable on fees with a lower expense ratio, but the difference is minimal. ISCV also edges out VBR on yield, though both funds offer similar payouts for income-focused investors.

Performance & risk comparison

What's inside

VBR tracks a broad mix of U.S. small-cap value stocks, with the largest sector allocations in industrials (19% of total assets), financial services (18%), and consumer cyclicals (13%). The fund holds 840 stocks, with top positions in NRG Energy, Sandisk, and EMCOR Group. Backed by over two decades of history and around $60 billion in assets under management, VBR’s scale supports robust liquidity and efficient trading.

ISCV, meanwhile, holds nearly 1,100 stocks and leans more heavily toward financial services (21%), consumer cyclicals (16%), and industrials (13%). Its top holdings include Sandisk, Rocket Companies, and Annaly Capital Management. While it is much smaller in AUM, ISCV offers even broader diversification within the small-cap value segment.

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What this means for investors

Investing in small-cap stocks can be a smart way to diversify your portfolio and gain exposure to stocks with impressive growth potential. Because smaller companies can be more volatile than their larger counterparts, investing in a small-cap ETF can help mitigate risk.

Both VRB and ISCV are exclusively focused on small-cap value stocks, but they have slightly different strengths and weaknesses.

ISCV is the more diversified of the two, with 256 more stocks than VRB. However, despite this diversification, it's experienced marginally higher levels of volatility over the past five years with a higher beta and slightly steeper max drawdown than VBR. While the difference is subtle, it's a factor to consider for investors concerned about risk.

The two funds also differ in their top sectors, with ISCV focused more on financial services and VBR tilted toward industrials. For investors who have a preference when it comes to sector diversification, this could be a deciding factor.

With similar fee structures and dividend yields, these two funds are essentially equal in terms of costs and income. But VBR's significantly higher AUM results in greater liquidity -- meaning it will be easier for investors to buy and sell shares without affecting the ETF's price.

For long-term investors who don't plan to sell anytime soon, liquidity may not be a selling point. But when most other differences between these two ETFs are marginal, it's something for investors to keep in mind.

Glossary

ETF: Exchange-traded fund; a fund that trades on stock exchanges like a stock, holding a basket of assets.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Assets under management (AUM): The total market value of assets a fund manages on behalf of investors.
Liquidity: How easily an asset or fund can be bought or sold in the market without affecting its price.
Dividend yield: Annual dividends paid by a fund or stock, expressed as a percentage of its current price.
Beta: A measure of an investment’s volatility compared to the overall market, typically the S&P 500.
Drawdown: The decline from a fund’s peak value to its lowest point over a specific period.
Small-cap: Refers to companies with relatively small total market values, typically between $300 million and $2 billion.
Value stocks: Stocks considered undervalued compared to their fundamentals, often trading at lower price-to-earnings ratios.
Sector allocation: The distribution of a fund’s investments across different industry sectors.
Diversification: Spreading investments across various assets to reduce risk.

Katie Brockman has positions in Vanguard Small-Cap Value ETF. The Motley Fool has positions in and recommends EMCOR Group and Rocket Companies. The Motley Fool has a disclosure policy.