ETF Trends
ETF Trends

Long-term investors who are more likely to shake off short-term swings should take a look at small-cap value stocks and related exchange traded funds for potentially better returns.

Many market observers have extolled the long-term benefits of small-cap stocks, and going one step further, the small-cap value category could provide even better returns, writes Sheyna Steiner for Bankrate.

ETF investors can also target small-cap value plays through options like the Vanguard Small-Cap Value ETF (NYSEArca: VBR), iShares S&P Small Cap 600 Value Index (NYSEArca: IJS) and iShares Russell 2000 Value Index (NYSEArca: IWN). [Interested in the U.S.? Look to ETFs that Target Smaller Companies.]

Over the past 10 years, VBR has generated an average annual return of 8.1%, IJS returned an average 7.9% and IWN provided 6.4%. In contrast, the S&P 500 index returned an average 7.7%.

The small-cap segment includes businesses worth $400 million to $1.8 billion. Additionally, the value style refers to the earnings of the company relative to stock prices, and value stocks typically have lower price-to-earnings ratios, or the price of the stock is cheap relative to earnings.

While excess returns for an asset category typically diminish if more people know about, outperformance in small-cap value has persisted. Observers attribute the outperformance to factors and risks, along with investment behaviors.

Factors such as size, value and profitability or quality all contribute to the value style. Additionally, potential rewards are associated with the relative risks an investor will take.

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