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