Unearthing Value With Small-Cap Stocks

The Vanguard Small-Cap Value ETF (NYSEArca: VBR) is an inexpensive, liquid idea for investors looking to tap the value factor as it applies to small-cap stocks.

VBR charge just 0.07% per year, the equivalent of $7 on a $10,000 investment. That makes VBR one of the least expensive small-cap value funds on the market today.

Value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets. On the other hand, growth-oriented stocks tend to run at higher valuations since investors expect the rapid growth in those company measures, but more are growing wary of high valuations, especially as the U.S. equities market moves toward the ninth year of an extended bull run.

VBR “is significantly less expensive than both small caps and large caps, in general. The tradeoff, obviously, is that you’re buying a relatively low growth portfolio that may be undervalued for a reason. In this specific instance, I like how the fund is positioned to grow over the next year or so,” reports ETF Daily News.

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. The ETF allocates 30.4% of its weight to financials, by far its largest sector weight.