VIOV vs VBR Comparison

VIOV vs VBR Comparison

VIOV vs VBR, or the Vanguard S&P Small-Cap 600 Value Index Fund and the Vanguard Small Cap Value Index Fund are both Vanguard small cap ETFs. 

Both are managed very passively by Vanguard and have proven to be profitable over the last ten years. But, before you can really understand what they are attempting to track and why you might want to purchase one of them, you first need to understand what a small-cap stock is.

VIOV vs VBR Comparison- Small Cap Stocks

What is a Small-Cap Stock?

Small-cap stocks are those stocks where the companies have a market capitalization of anywhere from about $300 million to about $2 billion. They are generally well-established, but smaller companies. 

The reason why they may be very popular with investors is because they are usually relatively new, this means that these companies have the potential for rapid growth.

Although, with this potential for rapid growth, there is also a high risk. These companies are far more likely to go under, or to be largely influenced by even the smallest changes in the market. For this reason, it is never a good idea to invest in a singular small-cap stock by itself, regardless of how certain you are that it will grow. 

Instead, investing in small cap ETFs, or collections of small cap stocks, is a much safer alternative. Like with all other index funds, if one of the holdings is negatively affected, the other holdings should act as a buffer, preventing colossal losses. But that same buffer also prevents positive gains. 

VIOv vs VBR are both relatively popular small-cap ETFs. In order to find out if either are suitable for your portfolio, let's look at some of the differences between the two. 

VIOV vs VBR: Comparison

VIOV vs VBR: Holdings

All figures here are taken from February 10th 2023. The biggest difference between VIOV vs VBR is the index that they track.

  • VIOV tracks the S&P Small-Cap 600 Value Index.
  • VBR tracks the CRSP US Small Cap Value Index.

Both of these are Vanguard ETFs with very similar performance, both focusing on small cap stocks.

The number of holdings in VIOV vs VBR differs quite a lot too. 

The top ten largest holdings of each ETF do not overlap at all, and there is a total overlap of only 14%, making them incredibly different.

Both are well distributed, but the top ten holdings of VIOV make up a total of 7%, while the top ten holdings of VBR make up about 5% of the ETF. 

VIOV vs VBR: Risk

Determining risk through the diversity of the holdings is very easy when it comes to VIOV vs VBR. With VBR having 862 holdings and VIOV only 458 holdings, VBR is far more diverse. This means that, if something were to happen to one of the holdings it would not affect the entire ETF as much as it would otherwise, making it lower risk. 

Another way to determine the risk is to look at the implied volatility. The mean implied volatility of VIOV vs VBR is 28.52% for VIOV and 20.45% of VBR, which correlates with the predicted risk of the number of holdings. 

VIOV vs VBR: Performance

Over the past ten years, the performance of VIOV vs VBR has been very similar with VIOV having increased by 11.27% and VBR having increased by 11.24%.

VIOV vs VBR Comparison- Comparative Graph of VIOV vs VBR

Comparative Graph of VIOV vs VBR

As can be seen in the graph above comparing the growth of VIOV (blue) and VBR (orange), we can see that the performance is very similar, although VIOV continuously seems to outperform VBR. Looking at the ten year growth, this does not seem to matter too much over longer periods of time though.

VIOV vs VBR: Cost

Additionally, the expense ratio should be taken into account, especially if you intend on holding a position for a long period of time. The expense ratio of both VIOV vs VBR are relatively low:

Usually, there would be the cost associated with commission fees as well.

However, because both VIOV vs VBR are Vanguard ETFs, they can be purchased without fees through Vanguard. Sometimes you may be able to purchase a fraction of a share.

But, if not, the price should be considered too.

  • VIOV is, at the time of writing this article, about $174,
  • while VBR is about $170, making the difference in cost negligible.
VIOV vs VBR Comparison- Comparative Cost of VIOV and VBR

VIOV vs VBR: Dividend Income

The dividend yield of VIOV vs VBR is important to consider, especially to offset the expense ratio for more long term investments.

  • VIOV has a dividend yield of 1.71%, which is more than enough to offset the expense ratio of 0.15%.
  • VBR has a slightly higher dividend yield at 1.95%, which, in combination with its lower expense ratio makes it the more profitable of the two ETFs

VIOV vs VBR: Conclusion

Small-cap stocks, in general, carry a far higher risk than mid-cap or large-cap stocks. However, they provide opportunities for incredible growth. If you want to diversify into small-cap stocks, then either VIOV or VBR will be suitable. In fact, because of the incredibly small overlap, investing in both would not be a bad idea either. 

However, if you only wish to invest in one, then it appears that VBR is the better choice of the two. Despite the similar initial purchase price and growth of VIOV vs VBR, VBR has a higher dividend yield, as well as a lower cost ratio. 

Although this may not seem like much of a difference at a first glance, over the course of several years, if the additional money is reinvested it can compound into major profits that you would not otherwise have had. 

But, remember that even ETFs carry significant risk. Never trade more than you are prepared to lose, and never buy or sell any asset before you have done adequate research. Trade responsibly.

After reading about the Comparison of VIOV vs VBR ETFs, you can also have a look at XLK vs VGT Technology ETF Comparison and XBI vs IBB Comparison.

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