- The Small Cap Value asset class has outperformed the Large Cap Blend asset class by 3.91% CAGR over the last 46 years
- The oldest available U.S. Small Cap Blend ETF has outperformed an S&P 500 index fund by 4.77% CAGR over the last 18 years
- There are currently 22 ETFs available in the Morningstar category Small Cap Value. 11 of those funds are 10 years old or older
U.S. Small Cap Value vs U.S. Large Cap Blend: Jan. 1972 – Sep. 2018
Source: https://www.portfoliovisualizer.com/
The oldest Small Cap Value ETF, iShares S&P Small-Cap 600 Value ETF (IJS) inception date was July 24, 2000. Since then, this ETF has compounded at a rate 10.70% while an S&P 500 index fund compounded at 5.93%.
IJS vs S&P 500 index fund: August 2000 – September 2018
Source: https://www.portfoliovisualizer.com/
IJS vs SPY: July 28, 2000 – October 13, 2018
Source: https://www.koyfin.com/home
There are currently 22 ETFs available in the Morningstar category called Small Cap Value. 11 of those funds have inception dates that are 10 years old or older. I have compared all 11 of these funds head-to-head using back testing tools at Koyfin and Portfolio Visualizer. They are ranked in order of long-term performance. Suitability, quality, valuations, etc. were not considered.
Source: https://www.morningstar.com/
Because the U.S. Stock Market is currently in middle of a mild correction, the ranking of the top 4 ETFs proved a little challenging. The top 4 U.S. Small Cap Value ETFs are very closely correlated and there is only a small difference between each of their long-term performances. In the chart above, they are ranked 1) RWJ, 2) SLYV, 3) IJS, 4) VBR. But, if you use Koyfin to compare them from February 22, 2008 through October 13, 2018, you’ll find them ranked 1) RWJ, 2) IJS, 3) VBR, 4) SLYV. If you are considering adding one of these top 4 U.S. Small Cap Value ETFs to your portfolio, I recommend considering whether your brokerage offers one of them commission-free, since all 4 are so closely ranked.
Next is the chart storm that compares the top 4 U.S. Small Cap ETFs head-to-head.
RWJ vs SLYV vs IJS vs VBR: March 2008 – September 2018
Source: https://www.portfoliovisualizer.com/
RWJ vs IJS vs VBR vs SLYV vs SPY: February 22, 2008 – October 13, 2018
Source: https://www.koyfin.com/home
RWJ vs SLYV: March 2008 – September 2018
Source: https://www.portfoliovisualizer.com/
SLYV vs IJS: November 2000 – September 2018
Source: https://www.portfoliovisualizer.com/
IJS vs VBR: February 2004 – September 2018
Source: https://www.portfoliovisualizer.com/
The chart storm is over. Now let’s look at the stated objectives and product summaries of these top 4 U.S. Small Cap Value ETFs.
RWJ – Oppenheimer S&P SmallCap 600 Revenue ETF. The strategy provides access to the same securities as the S&P SmallCap 600 Index, weighted by top line revenue instead of market capitalization. Broad exposure to the S&P 600 universe. Greater exposure to lower valuation companies than the market-cap benchmark. Consider for small-cap exposure at the core of your portfolio. (Best Long-Term Performance)
SLYV – The SPDR® S&P® 600 Small Cap Value ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P® SmallCap 600 Value IndexSM (the “Index”). The selection universe for the S&P SmallCap 600 Index includes all U.S. common equities with market capitalizations generally between $400 million and $1.8 billion at the time of inclusion. The Index includes stocks that exhibit the strongest value characteristics based on: book value to price ratio; earnings to price ratio; and sales to price ratio. (Low Expense Ratio 0.15%)
IJS – The iShares S&P Small-Cap 600 Value ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities that exhibit value characteristics. Exposure to U.S. small-cap stocks that are thought to be undervalued by the market relative to comparable companies. Low cost and tax efficient. Use as a complement to a portfolio’s core holdings. (Smallest Drawdowns During Market Downturns)
VBR – Vanguard Small-Cap Value ETF. Seeks to track the performance of the CRSP US Small Cap Value Index, which measures the investment return of small-capitalization value stocks. Provides a convenient way to match the performance of a diversified group of small value companies. Follows a passively managed, full-replication approach. (Lowest Expense Ratio 0.07%, Best Dividend 1.96%, Most Diversified With 856 Stocks)
The U.S. Small Cap Value asset class has historically been a top performer of all financial asset classes. I believe it would be wise for long-term investors to consider making Small Cap Value a sizeable portion of their equity portfolio; at least 5% and possibly up to 25% depending on their risk tolerance. The closely correlated long-term performance of the top 4 Small Cap Value ETFs gives investors plenty of quality picks to choose from in this asset class.
Thank you for taking time to read this article. If you found it useful, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
Disclosure: We own shares of VBR and we intend to buy shares of RWJ in the future. I am not a professional investment advisor. Please perform your own due diligence or seek assistance from a Registered Investment Advisor prior to investing in any fund mentioned in this article.
Previous Deep Value ETF Accumulator article on U.S. Small Cap Value ETFs: MAY 17, 2017 Best Long-Term Performance U.S. Small Cap Value ETFs