The Vanguard Small-Cap Value ETF (VBR) is an exchange-traded fund that aims to track the performance of the CRSP US Small Cap Value Index. This fund primarily invests in small-cap companies that exhibit value characteristics. The metrics that can denote value can range from price-earnings ratios to price-sales ratios and even dividend yields. 

Launched roughly 20 years ago, this fund continues to provide exposure to a widely-diversified basket of stocks across various sectors, with a particular focus on the financials and industrials space. Accordingly, it should be no surprise to readers to hear that this fund is up more than 30% on a year-to-date basis, and has seen strong returns over the past five years.

While this particular ETF has lagged others with heavier tech exposure, the value tilt with VBR is what makes this fund particularly interesting to me. And with a management expense ratio (MER) of only 7 basis points (0.07%), this is a fund that can provide some significant long-term compounding potential at a very low cost.

Here’s more on why VBR looks like a particularly strong opportunity in the ETF space right now.

Key Points About This Article:

• The Vanguard Small-Cap Value ETF (VBR) is a top value-focused ETF providing investors with exposure to small-cap stocks that may be worth a look.
• With strong historical performance and rock-bottom fees, this fund is poised to continue compounding investor capital over the long-term.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

What Analysts Have to Say

The Vanguard Small-Cap Value ETF (VBR) is among the ETFs that has plenty of analyst coverage. Of note, the current implied analyst target price of this ETF sits just shy of $220 per unit. From current levels, that implies upside of more than 10%, suggesting capital rotation into small-cap value stocks is likely to continue. Or, the market thinks this rotation will continue at least. 

It’s my view that many of the companies held in this fund are worth considering. From financials and industrials exposure to a range of biotech stocks and other companies that are relatively out of favor with investors, there is a lot to like about investing in a basket of stocks that can benefit from a rotation of capital toward value. In this environment, with valuations where they are, I do think such a rotation could continue to take shape in the coming quarters.

Additionally, as interest rates come down, many of the higher-growth (but still relative value plays) in the biotech sector held in the VBR ETF could get a boost. Financing costs will come down, and that should help other industrial holdings in this fund as well. For the financials companies covered by VBR, higher net interest income measures and other positive factors resulting from a steepening yield curve could bode well for this fund overall.

Valuation Matters

From a value perspective, one might rightly assume that the Vanguard Small-Cap Value ETF would offer great value. It does. Trading at just 12.5-times earnings compared to the S&P 500’s 27.5, VBR is certainly one of those relative value bets I think can make sense right now. Such a valuation gap, which is more than twice what investors can get by investing in a larger index fund, could reap big rewards if market participants focus more attention on valuations and profitable growth companies. 

This multiple also indicates to me that the overall portfolio of stocks held in the VBR are profitable (though not all). It will be interesting to see how the fund’s holdings that are weighted to a greater degree will perform. On this particular point, I think investors need to do their homework with respect to whether this ETF fits their risk profile.

But from a high level perspective, I think this is an ETF that could be positioned for market-beating returns, particularly if capital inflows into mega-cap tech stocks give way to value stocks. Historically, value stocks have outperformed growth stocks over a very long time frame, so if we are reverting back to the mean, that could be a good thing for investors in this ETF.

Bottom Line: VBR Looks Like a Buy

In my view, VBR is an attractive ETF to consider right now, for more reasons than those listed in this piece. Of course, valuation matters (though it hasn’t in recent years), and this fund’s structure – being focused on small-cap value stocks – is one I think should provide significant upside over the long-term. Adding in the low fee structure and implied upside from analysts and investors can certainly gain the kind of confidence they may be looking for to put some capital to work outside of traditional index funds.

I’m not sure if next year will provide 30% returns once again. But I do think many of the companies held in this ETF are worth looking at, on an individual basis. Accordingly, this is a top ETF on my radar right now, and is one I’d certainly consider a buy for longer-term investors looking to break from the pack and make a bit of a contrarian pick.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.