Vanguard vs. iShares: Is VBR or IWN the Top Small-Cap Value ETF?

• IWN has generated a stronger one-year total return than VBR, but lags over a five-year period.

• VBR charges a much lower expense ratio than IWN, which could appeal to cost-conscious investors.

• Sector tilts differ: IWN leans toward financials and real estate, while VBR emphasizes cyclical consumer and industrial sectors.

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The biggest differences between Vanguard Small Cap Value ETF (NYSEMKT:VBR) and iShares Russell 2000 Value ETF (NYSEMKT:IWN) are their expense ratios, sector exposures and recent return profiles, with IWN showing higher exposure to financials and delivering higher one-year returns.

Both VBR and IWN aim to provide investors with broad exposure to US small-cap value stocks, but they track different indices and exhibit notable differences in portfolio composition, cost structure and risk. For investors considering these two popular options, the details below can help clarify which approach is best for them.

Beta measures price volatility relative to the S&P 500; Beta is calculated from five-year weekly returns. One-year performance represents the total performance over the past 12 months.

VBR looks more affordable with its 0.07% expense ratio compared to IWN’s 0.24%, and it also offers a slightly higher dividend yield, which could appeal to income-focused investors.

IWN tracks a basket of 1,407 U.S. small-cap stocks that exhibit value characteristics, with 26% in financial services, 12% in real estate and 11% in industrials. Its main holdings are ecostar, Hecla Miningand UMB financial, each represents less than 1% of assets. IWN has a 25-year history, providing a rich history for analysis.

VBR, on the other hand, owns 841 stocks and leans more toward industrials (19%), financial services (18%) and cyclicals (13%). His most important positions include NRG Energy, sandiskand EMCOR Groupall with modest weightings. VBR’s portfolio is a little more concentrated by sectors.

For more guidance on investing in ETFs, check out the full guide at this link.

Since 2004, VBR has generated annualized total returns of 9.2%, compared to 7.8% for IWN. In addition to this track record of outperforming its peers, VBR strikes me as the clear winner due to its:

• expense ratio is one third of IWN

• slightly lower beta (volatility) and drawdown

• higher dividend yield

• less exposure to the financial industry

• greater allocation to the consumption sector

• larger asset base

I’d say it’s a clean sweep for me personally, aside from the fact that IWN can offer more depth within its portfolio, with almost twice as many shares. Likewise, if investors are more interested in small banks or stable Eddie REITs, IWN may be the best option for you.

IWN is an excellent ETF for investors to consider, and this is a specific decision for investors. However, in direct comparison with VBR, the latter emerges as the top small-cap value ETF that investors can buy and hold for years.

ETFs: exchange-traded fund; a pooled investment fund that trades on stock exchanges like a stock.
Expense ratio: The annual fee, as a percentage of assets, charged by a fund to cover operating costs.
Dividend yield: Annual dividends paid by a fund divided by its current share price, expressed as a percentage.
Beta: A measure of an investment’s volatility relative to the broader market, usually the S&P 500.
AUM: Assets under management; the total market value of the assets that a fund manages on behalf of investors.
Maximum reduction: The largest percentage drop from a fund’s peak value to its lowest point during a specific period.
Small Cap: It refers to companies with relatively small total market values, typically between $300 million and $2 billion.
Value Features: Financial traits that indicate a stock is undervalued, such as a low price-to-earnings ratio or price-to-book ratio.
Sector inclination: When a fund allocates more assets to certain sectors than the overall market or its benchmark index.
Consumption cyclicals: Companies whose business performance is closely linked to economic cycles, such as retailers or automobile manufacturers.
Total profitability: The price of the investment changes plus all dividends and distributions, assuming those payments are reinvested.
Index: A benchmark that tracks a group of securities, used to measure performance or guide fund holdings.

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Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool views and recommends the EMCOR Group. The Motley Fool has a disclosure policy.

Vanguard vs. iShares: Is VBR or IWN the Top Small-Cap Value ETF? was originally published by The Motley Fool