Small-cap ETFs are currently outpacing their large-cap counterparts. With small-cap stocks outperforming, the Vanguard Small-Cap Value Index Fund ETF (VBR) is emerging as a top pick. Let's delve into why VBR is gaining traction and briefly touch on the Vanguard Information Technology ETF (VGT) and the Vanguard Growth ETF (VUG).

Vanguard Small-Cap Value Index Fund ETF: A Top Pick

A Rotation to Small-Cap Stocks

The Vanguard Small-Cap Value Index Fund ETF (VBR) is benefiting from a shift towards small-cap stocks. The Russell 2000 index, a benchmark for small-cap stocks, recently reached its highest level in nearly two and a half years. Reflecting this trend, VBR has significantly improved performance after a slow start in early 2024. Tom Lee of Fundstrat predicts a potential 40% surge in small-cap stocks, driven by moderating inflation and steady consumer spending.

Attractive Pricing

VBR's appeal is further enhanced by its attractive pricing. The ETF's portfolio stocks trade at an average of 14.1 times their trailing 12-month earnings, compared to nearly 27.5 for the S&P 500. JPMorgan Chase highlights that small-cap stocks are trading at a near-record valuation discount to large-cap stocks, presenting a significant value opportunity. Additionally, the ETF's low price of under $200 allows investors to hold positions in 848 stocks, with an average 30-day SEC yield of 2.1% and an annual expense ratio of just 0.07%.

Vanguard Information Technology ETF: Tech Sector Strength

The Vanguard Information Technology ETF (VGT) tracks the MSCI US Investable Market Information Technology 25/50 Index, including a mix of large, mid, and small-cap stocks. Key holdings like Apple, Microsoft, and Nvidia have driven its year-to-date return to 16.19%. VGT's low expense ratio of 0.10% makes it cost-effective to invest in the tech sector, maintaining strong performance within its field.

Vanguard Growth ETF: High-Growth Potential

The Vanguard Growth ETF (VUG) focuses on large-cap growth stocks, tracking the CRSP US Large Cap Growth Index. It includes companies such as Amazon, Tesla, and Alphabet, contributing to a year-to-date return exceeding 20%. VUG's low expense ratio of 0.04% and its strategic focus on high-growth companies make it an attractive option for short-term market movements. The ETF's 5-year annualized return of 28.43% underscores its potential for significant growth.

The Vanguard Small-Cap Value Index Fund ETF is the one to watch the current market. Its attractive pricing and rotation to small-cap stocks make it a convincing choice.