VBR’s large financial services weight could prove advantageous moving forward. Dodd-Frank has forced many banks to increase more conservative capital holdings to obviate another potential financial crisis event. While these more secure capital restrictions help limit exposure to risky or distressed assets, banks are finding it harder to make loans and do business. The regulations have also been particularly hard on smaller banks.
Meanwhile, a rising interest rate environment helps banks’ bottom line. With the Federal Reserve enacting a recent interest rate hike and looking to add three more next year, banks are able to make a larger profit off the spread between loans and deposits.
Over the long-term, volatility from small-cap value stocks compares favorably with traditional small-cap indexes.
“Small-cap stocks have indeed historically compensated investors for their risks over the long term. From its inception in December 1978 through March 2017, the Russell 2000 Value Index (which offers similar exposure to this fund) outpaced the Russell 2000 Growth Index by about 3.5 percentage points per year,” adds Morningstar.
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