The value factor is one of the most widely followed investment factors, something that is evident by the scores of exchange-traded funds (ETFs) dedicated to value stocks. Of course, investors also want to know they are getting value when devoting capital to a value ETF. Part of the value proposition can come in the form of a low expense ratio, certainly something the Vanguard Small-Cap Value ETF (VBR) makes good on. The Vanguard Small-Cap Value ETF carries an annual fee of just 0.08 percent, or $8 on a $10,000 investment. That makes VBR less expensive than a whopping 94 percent of competing funds, according to Vanguard data.

VBR follows the CRSP US Small Cap Value Index, which focuses on small-cap value names. However, investors should note just how "small-cap" this small-cap ETF really is. VBR's nearly 830 constituents have a median market value of $3.6 billion, putting the ETF more in mid-cap territory and above the $2 billion that is the standard definition of small-cap at the top end. (See also: VBR: Vanguard Small-Cap Value ETF.)

Small-cap value stocks can have some drawbacks as well. These stocks "also tend to have poor growth prospects and, in many cases, limited profitability, so they are not necessarily bargains. But they could become undervalued if investors extrapolate lackluster past growth too far into the future," said Morningstar in a recent note covering VBR.

VBR is not top heavy at the stock level, as its top 10 holdings combine for less than 5 percent of the ETF's weight. That helps lower VBR's volatility and single stock risk. However, the ETF is top heavy at the sector level, as two sectors – financial services and industrials – combine for over half the ETF's weight. Large weights are allocated to financial stocks across an array of value ETFs, regardless of market cap spectrum. (See also: Value vs. Growth ETFs: How Do You Choose?)

There are some advantages to the small-cap value style as well, including reduced volatility. "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," said Morningstar. "This outperformance has not been consistent. During the past decade, the Russell 2000 Value Index lagged its growth counterpart by 2 percentage points annually. While they won't always come out ahead, value stocks will likely offer a modest return edge over the long term." (See also: Value Investing Strategies in a Volatile Market.)


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