Vanguard Small Cap ETF Showdown – VB vs. VIOO vs. VTWO

Vanguard offers several popular small cap ETFs, namely VB, VIOO, and VTWO. Is there one that reigns supreme? Let's find out.

// TIMESTAMPS:

00:00 - Intro - What We're Looking For
01:18 - VB
01:51 - VTWO
02:19 - VIOO
03:04 - Conclusion
04:06 - Outro

// SUMMARY:

First let’s break down VB. It’s called the Vanguard Small-Cap ETF. The fund seeks to track the CRSP US Small Cap Index. This index is pretty simple; it’s just the bottom 2-15% of the investable U.S. stock universe by market cap. This means VB actually ends up skewing mid-cap, with a weighted average market cap of $6.7B, over 2x that of the other 2 funds here. VB’s comparative factor loading corroborates this fact, with much lower exposure to the Size factor compared to both VIOO and VTWO.

Now let’s talk about VTWO. It’s called the Vanguard Russell 2000 ETF. As the name suggests, this ETF seeks to track the famous Russell 2000 Index, holding the 2000 smallest stocks by market cap from the broader Russell 3000. Like the CRSP index that VB uses, the Russell 2000 index does not have a dedicated earnings screen. However, it’s inarguably holding smaller stocks than VB. Its weighted average market cap is about $3.2B.

Lastly, we’ve got VIOO. This is the Vanguard S&P Small-Cap 600 ETF. It seeks to track the S&P SmallCap 600 Index. This index captures roughly 600 stocks within the small cap universe selected by an S&P committee. Unlike the other two funds, VIOO does employ some earnings screens to ensure financial viability. This gives the fund small positive loading across Profitability and Investment, while VB and VTWO both have negative loadings for these.

VIOO also conveniently has the lowest average market cap at about $2.5B and the greatest loading on the Size factor, meaning it is capturing the smallest stocks with robust profitability. VIOO also actually slightly tilts Value.

So we should inarguably prefer the more effective exposure of VTWO and VIOO, but of course they happen to come with a higher price tag. That said, “higher” in this context is still comparatively very low. Specifically, VB has a fee of 0.05%, while both VTWO and VIOO have a fee of 0.10%.

In short, in considering which Vanguard small cap ETF to buy, VTWO and VIOO provide much more bang for our buck compared to VB and are very much worth the slightly higher fee in my opinion. Since VTWO and VIOO have the same fee, I see no reason not to prefer VIOO.

#investing #vanguard #etfs

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[jeremytorgersen]

Great video, very helpful comparison between these funds. I own VB in a 401K, however I am currently now deciding between between VIOO and VIOV in my ROTH (or perhaps both).

[JeffClegg]

My shares of VB have gained 12.73% and this will go up if the market ever cooperates.

[rowanwood]

No mention of CAGR? I don't understand this omission.

[alia]

I have all three of them in my 401k portfolio. Small cap makes 10% of my overall 401k portfolio