Should Vanguard S&P Small-Cap 600 Value ETF (VIOV) Be on Your Investing Radar?

Vanguard S&P Small-Cap 600 Value ETF (VIOV) is specifically designed to provide investors with expansive exposure to the Small Cap Value segment of the US equity market. This exchange-traded fund (ETF) was launched on September 9, 2010, and is passively managed.

Sponsored by Vanguard, the fund has accumulated assets exceeding $1.42 billion, positioning it as an average-sized ETF among those striving to mirror the Small Cap Value section of the US equity market.

Why Invest in Small Cap Value?

Investing in small-cap companies—which have market capitalizations below $2 billion—can offer exciting potential, although it comes with higher risks. Value stocks typically have lower price-to-earnings (P/E) and price-to-book (P/B) ratios compared to growth stocks, alongside lower sales and earnings growth rates.

Historically, value stocks have displayed a tendency to outperform growth stocks over the long run, but in strong bullish markets, growth stocks often surpass their value counterparts.

Expense Considerations

Expense ratios are critical when analyzing an ETF's total return. Generally, funds with lower operating costs tend to outperform more expensive alternatives over time, provided that other aspects remain constant.

The Vanguard S&P Small-Cap 600 Value ETF charges annual operating expenses of just 0.15%, making it one of the most cost-effective options within its category. Additionally, it has a trailing 12-month dividend yield of 1.26%.

Sector Allocation and Key Holdings

Before investing in an ETF, it is crucial to analyze its holdings. Despite the many advantages of diversification, which reduces the risk associated with individual stocks, a clear understanding of where the ETF invests is essential.

In terms of sector allocation, this ETF has the largest percentage in the Financial Services sector, comprising about 27.70% of its portfolio. The Industrials and Consumer Discretionary sectors follow in importance.

Among its individual holdings, Comerica Inc (CMA) makes up around 1.13% of the total assets, followed closely by Slcmt1142 and Lumen Technologies Inc (LUMN). The top 10 holdings collectively account for approximately 8.02% of the ETF's total assets under management.

Performance and Risk Analysis

The Vanguard S&P Small-Cap 600 Value ETF aims to replicate the performance of the S&P SmallCap 600 Value Index before considering fees and expenses. This index reflects the performance of value-based companies within the S&P SmallCap 600 Index.

As of December 23, 2024, VIOV has achieved a return of around 7.48% year-to-date and an annual increase of about 10.99%. Over the preceding 52 weeks, the ETF's price has fluctuated between $80.92 and $101.38.

For the trailing three years, VIOV exhibits a beta of 1.17 and a standard deviation of 21.94%, indicating it is a medium-risk investment within this space. Additionally, the ETF boasts roughly 465 holdings, allowing it to effectively mitigate company-specific risks.

Alternative Investment Options

The Vanguard S&P Small-Cap 600 Value ETF earns a Zacks ETF Rank of 2 (Buy), which reflects its expected asset class return, expense ratio, and performance momentum, among other metrics. This makes VIOV an appealing choice for those interested in the Style Box - Small Cap Value segment of the market.

Investors may also explore other available ETFs within this category. For example, the Avantis U.S. Small Cap Value ETF (AVUV) and the Vanguard Small-Cap Value ETF (VBR) track similar indexes. The Avantis fund boasts $15.06 billion in assets, while the Vanguard option has around $30.98 billion. AVUV has an expense ratio of 0.25%, and VBR charges 0.07%.

Conclusion

Both retail and institutional investors are increasingly leaning towards passively managed ETFs due to their low cost, transparency, flexibility, and tax efficiency. These investment vehicles are particularly suitable for long-term investors.

For those interested in expanding their understanding of this product and other ETFs, it is advised to search for investment options aligning with personal objectives and to stay updated with the latest news in the ETF market.

Vanguard, ETF, SmallCap