The Best Small-Cap Growth ETF

Historically, investors looked to small-cap stocks for growth. 

Big tech changed that over the last decade. But with heavyweights including Meta and Google cutting back on staff and expenses, financial pros have shifted their focus back to small businesses.

As we researched small-cap ETFs, we found an unusual trend. While financial pros don’t typically search for small-cap growth tickers, our proprietary Trackstar database showed a slow but steady increase over the last month.

That’s why we picked their top search in this category – the Vanguard Small-Cap Growth ETF (VBK) – for today’s newsletter.

And don’t let the low search numbers fool you. Many financial pros search tickers outside the office, counting toward our retail segment, which searched for VBK 484 times.

Key Facts About VBK

• Net assets: $12.5 billion
• 12-month trailing yield: 0.55%
• Inception: January 26, 2004
• Expense ratio: 0.07% 
• Holdings: 691

VBK tracks the CRSP U.S. Small Cap Growth Index, which uses multiple factors to select and weigh stocks that rank between the 85th and 98th percentiles by market cap.

The ETF’s top 10 holdings highlight its fairly even investment distribution:

Source: ETF.com

Performance

VBK has delivered solid returns over its lifetime, even beating the benchmark index a bit.

The table below shows VBK’s average annual returns, including dividends, over multiple periods.

Source: Vanguard

In five years, the ETF has returned 34.4%, while it’s done even better over the last three years, up 44.6%.

Competition

With different methodologies for small-cap growth selection, each of the following competitors offers a slightly different portfolio using a similar approach.

• iShares S&P Small-Cap 600 Growth ETF (IJT): The small-cap growth index the IJT follows uses three growth factors: three-year change in earnings per share over price per share, three-year sales per share growth rate, and momentum (12-month share price percentage change). It weighs its holdings according to market capitalization. 
• iShares Russell 2000 Growth ETF (IWO): IWO divides the Russell 2000 small-cap index into growth and value subsets using two-year growth forecasts and five-year historical sales-per-share growth.
• iShares S&P Mid-Cap 400 Growth ETF (IJK): Slightly more different from the rest, IJK follows the S&P 400 Mid Cap Index, which then selects smaller companies with higher-growth characteristics.

VBK is known for its low expense ratio, the lowest in the group. Plus, it’s the largest fund of the bunch.

While its dividend yield isn’t great, it’s the top performer over a five-year period, save for the one mid-cap fund.

Our Opinion 8/10

VBK is the best small-cap growth index of the group.

But small-caps haven’t held up as well as other asset classes, which is why we dropped our rating to an 8/10.

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