“Low valuations do not necessarily make a stock a bargain. A company’s fair value is the present value of its future cash flows, plus the value of its financial assets, minus debt. Earnings growth is an important part of that equation. An investor should be willing to pay more for a company with higher expected growth,” according to Morningstar.

In the current environment of dollar strength, small-caps have their advantages. For instance, most smaller companies are not exposed to foreign exchange risks and the strengthening dollar. According to Bank of America Merrill Lynch, 81.3% of revenue from the Russell 2000 Index is generated within the U.S., whereas 64.3% of revenue for S&P 500 companies come from the states. [Small-Caps Look Pricey]

VBR is up about 5% year-to-date.

Vanguard Small-Cap Value ETF

Tom Lydon’s clients own shares of IWM.