VBR Offers Greater Size While ISCV Pays Higher Yield

The Vanguard Small-Cap Value ETF (NYSEMKT:VBR) and the iShares Morningstar Small-Cap Value ETF (NYSEMKT:ISCV) both target U.S. small-cap value stocks, but differ in size, liquidity, yield, and five-year performance.

Both funds aim to provide broad exposure to small-cap U.S. companies with value characteristics, but they take slightly different approaches. This comparison unpacks their costs, performance, portfolio makeup, and unique traits to help investors decide which may better fit a small-cap value 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.

ISCV is slightly more affordable with a 0.06% expense ratio, while VBR’s 0.07% fee is also low by industry standards. VBR's slightly higher yield and lower beta may appeal to income investors.

Performance & risk comparison

What's inside

Vanguard Small-Cap Value ETF tracks a broad small-cap value index, holding 831 stocks with a 21.9-year track record. Its sector allocation leans toward Industrials (21.7%), Financial Services (19.8%), and Consumer Discretionary (14.2%). Top holdings include NRG Energy (NYSE:NRG), Sandisk (NASDAQ:SNDK), and EMCOR Group (NYSE:EME), each representing less than 1% of assets. The fund’s $59.6 billion in assets under management (AUM) provides deep liquidity, and its approach is strictly passive.

ISCV also targets small-cap value stocks but with a slightly different sector mix: Financial Services (24.5%), Consumer Discretionary (13.5%), and Industrials (13%). Unlike the Vanguard ETF, this fund tracks an index composed of small-cap U.S. equities that exhibit value characteristics. It holds over 1,100 names, spreading risk broadly. Its largest positions -- Annaly Capital Management(NYSE:NLY), Viatris (NASDAQ:VTRS), and Everest Group (NYSE:EG) -- each make up less than 1% of the fund. Neither ETF introduces leverage, currency hedging, or other structural quirks.

What this means for investors

Investing in small-cap stocks gives you exposure to younger, smaller companies with lower profits than more established companies. These investments can be a good way to diversify your portfolio, and may offer stronger upside potential than their large-cap counterparts, due to their smaller size. Index funds like VBR and ISCV offer a way for investors to gain exposure to a large basket of small-cap stocks with a single investment, which can be especially helpful when investing in companies that are lesser-known and earlier in their growth stories.

Both VBR and ISCV offer a large portfolio of not only small-cap stocks, but specifically small-cap stocks that exhibit value characteristics, meaning they are thought to be undervalued by the market. Both also have a higher concentration in the financial, consumer discretionary, and industrials sectors of the market, though the VBR ETF is much larger, with total assets under management of almost $60 billion, more than 100 times larger than the ISCV ETF. This larger fund size likely also explains its lower beta, which measures the fund's volatility relative to market benchmarks. Given VBR's larger size, lower volatility, and slightly better performance over the last five years, it looks to have a slight edge over the ISCV fund today.

Glossary

ETF: Exchange-traded fund; a pooled investment fund traded on stock exchanges, holding a basket of assets.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Dividend yield: Annual dividends paid by a fund or stock, expressed as a percentage of its current price.
Liquidity: How easily an asset or fund can be bought or sold without affecting its price.
AUM: Assets under management; the total market value of assets a fund manages for investors.
Beta: A measure of an investment's volatility compared to the overall market, often the S&P 500.
Max drawdown: The largest percentage drop 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 relative to fundamentals like earnings or book value, often paying dividends.
Sector allocation: The distribution of a fund's investments across different industries or sectors.
Passive investing: An investment strategy that tracks a market index rather than actively selecting individual securities.

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

Sarah Sidlow has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends EMCOR Group. The Motley Fool recommends Everest Group. The Motley Fool has a disclosure policy.