Best Long-Term Performance U.S. Small Cap Value ETFs

If you have been considering adding a U.S. Small Cap Value ETF to your portfolio, you have a lot to choose from. There are at least 17 ETFs to pick from in this category. In this article, I will show you how I came up with what I believe is the best ETF in this category for a well-balanced portfolio.

Before I go through that analysis, let’s first look at the long-term performance of the U.S. Small Cap Value asset class. This asset class has long been touted as a volatile yet lucrative place to build wealth over long periods of time. According to portfoliovisualizer.com, this asset class has returned 14.39% since 1972 vs the U.S. Large Cap Blend asset class which has returned 10.17%. Both are respectable returns but look at the effects of compounding on this chart below.

1972 to 2017 is 45 years. That’s a very long time to hold an investment. So, let’s take a look at how this asset class has performed just since August 2000. On July 24, 2000, iShares started issuing shares in the iShares S&P Small-Cap 600 Value ETF – IJS. This is a much shorter time-frame for comparison, but the results are no less dramatic. The IJS ETF returned 10.32% vs the S&P 500 index with a 5.01% return during that 17 year period.

Now that we know, based on past history, that the Small Cap Value asset has a good strong track record, this should be a good place to put a portion of our portfolios. Since I believe it is a good place to invest, I compared all the ETFs in this category that are 10 years or older head-to-head. Here are the 10 ETFs I compared: IJS, IWN, SLYV, VBR, JKL, PXSV, PZI, FDM, RZV and DES.

I did not use following table to make the comparison. I used portfoliovisualizer.com to perform this task. I can only compare 3 ETFs at a time on their website, so I will show just the 3 that outperformed all the others. Those 3 are SLYV, VBR & JKL.

As you can see in the chart above, all 3 funds are in a statistical dead-heat. With such close returns, they are probably all 3 tracking the same exact stocks. In fact, any ETF that tracks the S&P 600 index will probably march in lockstep with each other and outperform other similar indexes. For example, IJS only trailed VBR by 0.06% over the last 13 years. Of the 3 ETFs that outperformed, I prefer the Vanguard Small-Cap Value ETF – VBR for these reasons:

  • VBR has a lower expense ratio (0.07%), SLYV (0.15%), JKL (0.30%)
  • VBR has less turnover (18%), SLYV (48%), JKL (51%)
  • VBR has a lower dividend (1.82%) than JKL (2.38%). SLYV has a dividend of  (1.51%)
  • VBR has much higher average trading volume (163k), SLYV (11k), JKL (10k)

As with any investment decision, you should do your own due diligence. As for full disclosure, I own some shares of VBR, and I intend to accumulate more in the future. I think investors will do well in this asset class no matter which ETF they choose, although the ETFs that track the S&P 600 value index seem to do better than those that track the Russell 2000 value index.

Thank you for reading.

The Deep Value ETF Accumulator, aka Micah McDonald

 

4 Replies to “Best Long-Term Performance U.S. Small Cap Value ETFs”

  1. Thanks for the research Micah. I have been using IJS the last few years and I am totally happy having a good % of my portfolio in value. Keep up the good work.

  2. Thanks for the read. I too have owned VBR for about 3.5 years. Haven’t enjoyed the compounding though, as I moved profits to cash along the way to slowly decrease exposure as I approach 65. That said, midcap value and small cap value are currently the leaders (with withdrawals) in a diversified mutual fund portfolio, although this is a recent change in no small part due to the surge in financials over the last six months or so; growth had led until then. Financials low P/E and P/B cause them to be pretty heavily weighted in index value funds.

    1. Hi Gary.
      I’m still in the accumulation phase of investing.
      I have a similar approach to selling.
      I have a diverse, but NOT balanced portfolio.
      My portfolio becomes very heavily tilted towards out-of-favor sector occasionally.
      So, if one of those out-of-favor sectors turns around and becomes profitable, I begin to sell bits of it off to fund another sector.
      With all that said, I plan to pursue the same approach as yours’ during retirement.
      I went and looked at VBR on Vanguard and see it is heavy in financials.
      I can see the reasoning behind this.
      I still like the fund and plan to invest more into it in the future.
      I don’t own or plan to own any financial sector ETFs, so VBR will give me that exposure.
      I like DON in the mid-cap value category too.
      Thanks your comments.
      Micah

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