The Schwab U.S. Small Cap fund (SCHA) holds the title of least expensive small-cap ETF (its expense ratio is 0.08%). This one tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, which consists of the smallest 1,750 of the 2,500 largest publicly traded companies. At $2.9 billion in assets, it is highly liquid and has a razor-thin average trading spread of 0.07%. A close second in the race to cheapness is the Vanguard Small Cap fund (VB, which has an expense ratio of 0.09%). At $11.4 billion in assets, it is the third-largest small-cap ETF fund, and it tracks the CRSP Small Cap Index. It skews more toward mid-caps than many of its competitors, which is reflected in its companies’ weighted average market cap of $3.74 billion.

Growth
Big performance differences can emerge between small-cap growth and value ETFs, and in the last year, growth stocks have taken a decisive lead. As of April 15, the iShares Russell 2000 Growth fund (IWO, which has an expense ratio of 0.25%) was up 22% for one year, while the iShares Russell 2000 Value fund was up 9.07% (the value fund, IWN, has an expense ratio of 0.25%). Growth stocks are also more richly valued in this area; the growth component of the Russell Small Cap index sports a price-to-earnings ratio of 26.3, while the value side’s ratio is 18.0.

The IWO fund is the largest ETF in the growth group, with $7.4 billion in assets. It emphasizes information technology and health-care stocks, which account for about half of its assets, whereas these sectors make up only about one-third of the broad Russell 2000 index. The financials in this index weigh in at a mere 7.4%, whereas they represent 23% of the bogey index’s assets and 40% of the index’s value names. About 10% of the IWO portfolio is in micro-caps, which gives it more of a growth tilt than some of its competitors have, and it has a weighted average market cap of $2.38 billion.

The $4.6 billion Vanguard Small Cap Growth fund (VBK, which has an expense ratio of 0.09%) is the second-largest small-cap ETF emphasizing growth stocks. It tracks the CRSP US Small Cap Growth Index, which has greater exposure to mid-cap stocks than the Russell 2000 Small Cap Growth Index, and its weighted average market cap is $3.92 billion.

The iShares S&P 600 Small Cap Growth fund (IJT, whose expense ratio is 0.25%) is the largest ETF to track this S&P index. The $3.5 billion fund has a 24% stake in financials, which is much higher than that of most competitors, and its valuation measures such as price-to-earnings and price-to-book ratios are somewhat lower.

Value
Although small-cap growth stocks have shot ahead recently, small-cap value stocks hold an edge over the long-term by a wide margin. From its inception in 1978 through 2014, the Russell 2000 Value Index has outpaced the Russell 2000 Growth Index by an average of 3.4% a year. But small-cap value stocks can also lag growth over long periods, as they have for much of the last decade. Their businesses are often unpredictable, and despite a comforting label, the standard deviation of the value side of the Russell index over the last five years isn’t that much lower than it is on the growth side.

The funds in this space search for value in ways different enough to produce different market cap and sector tilts. With $6.5 billion in assets, the iShares Russell 2000 Value fund is the largest ETF that targets the cheaper side of the small-cap market. Besides financials, in which it has the massive 40% stake mentioned before, the ETF’s top sectors include industrials (12.7%) and consumer discretionary names (12.08%). The fund’s expense ratio is higher than that of some competitors, but it gets high marks for a razor-thin trading spread of just 0.01%. It has a weighted average market cap of $1.8 billion.

Vanguard offers small-cap value exposure through the $5.6 billion Vanguard Small Cap Value fund (VBR, whose expense ratio is 0.09%). This fund follows the CRSP U.S. Small Cap Value Index. It leans more toward mid-caps than the iShares value offering, and it has a weighted average market cap of $3.59 billion. It has a lower stake in financials (29.3%), but a bigger position in industrials (20.7%).

Of the three ETFs that track the S&P 600 Value Index, the iShares S&P Small Cap Value fund (IJS, whose expense ratio is 0.25%) is the most liquid. According to ETF.com, the fund “tilts toward small, which makes it look growthier,” and its dividend yield is lower than that of other small-cap offerings. It has a weighted average market capitalization of $1.5 billion.

The $1.3 billion WisdomTree Small Cap Dividend fund (DES, which has an expense ratio of 0.38%) has a value tilt, even though that description doesn’t appear in its name. Its 30-day SEC yield of 2.7% is about a percentage point higher than that of competing small-cap value ETFs. Financials are the largest sector (24%) followed by industrials (16%) and consumer discretionary (16%). 
 

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