Go Small or Go Home: Vanguard's Small Cap 'VIOV'

As the global economy continues to heal, investors have been snatching up small cap equities in anticipation of another bull market run. Value has also blazed a comeback trail. Investors can get both small caps and value in the Vanguard S&P Small-Cap 600 Value Index Fund ETF Shares (VIOV).

While falling out of favor in a pandemic-ridden 2020, small caps are now back in a big way as the Russell 2000 continues to gain steam. The index is up about 16% year-to-date, while VIOV is up close to double that.

“Small-cap stocks lagged the broader market in 2020 as investors were concerned about their ability to survive the pandemic,” notes Morningstar chief markets strategist Dave Sekera. “But now, with the vaccine rollout well on its way and a clear pathway to economic normalization on the horizon, small-cap stocks have outperformed as the market is pricing in a strong earnings rebound in the near term.”

VIOV seeks to track the performance of a benchmark index that measures the investment return of small-capitalization value stocks in the United States. The fund employs an indexing investment approach designed to track the performance of the S&P SmallCap 600® Value Index, which represents the value companies, as determined by the index sponsor, of the S&P SmallCap 600 Index.

VIOV Chart

A Deep, Diverse Portfolio

The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index. VIOV:

  • Focuses on closely tracking the index’s return, which is considered a gauge of overall U.S. small cap value stock returns.
  • Offers high potential for investment growth; share value rises and falls more sharply than that of funds holding bonds.
  • Is more appropriate for long-term strategies where your money’s growth is essential.

“Despite their (small caps) volatility, these products should probably be in every investors’ portfolio as they tend to move somewhat independently of large caps and can be a better ‘pure play’ on the American economy,” ETF Database analysis explains. “This particular ETF, since it focuses on value securities, has certain biases in its portfolio holdings and may not offer as much of a cross section as funds such as IWM. However, VIOV does a solid job of dividing up assets as the fund holds more than 400 securities in total.”

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