VBR: Not The Most Ideal Pick, But Still Offers Some Promise

seekingalpha08-21

PM Images/DigitalVision via Getty Images Introduction Prospective investors who are looking for diversified access to a wide pool of small-cap stocks that exhibit value characteristics currently have ...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nVBR: Not The Most Ideal Pick, But Still Offers Some Promise\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-21 00:50 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4715933-vbr-etf-not-the-most-ideal-pick-but-still-offers-some-promise><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>PM Images/DigitalVision via Getty Images Introduction Prospective investors who are looking for diversified access to a wide pool of small-cap stocks that exhibit value characteristics currently have ...</p>\n\n<a href=\"https://seekingalpha.com/article/4715933-vbr-etf-not-the-most-ideal-pick-but-still-offers-some-promise\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"AVUV","symbol_name":"Avantis U.S. Small Cap Value ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4715933-vbr-etf-not-the-most-ideal-pick-but-still-offers-some-promise","article_id":"2461884956","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2058543026/image_2058543026.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2461884956","pubTimestamp":1724172625,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"PM Images/DigitalVision via Getty Images Introduction Prospective investors who are looking for diversified access to a wide pool of small-cap stocks that exhibit value characteristics currently have ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"AVUV":"Avantis U.S. Small Cap Value ETF","BK4588":"碎股","BK4550":"红杉资本持仓","VBR":"Vanguard Small-Cap Value ETF","FDN":"First Trust Dow Jones Internet I","BK4585":"ETF&股票定投概念"},"translate_title":"VBR：不是最理想的选择，但仍然提供了一些希望","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AVUV":1,"VBR":1,"FDN":0.9},"content_text":"PM Images/DigitalVision via Getty Images Introduction Prospective investors who are looking for diversified access to a wide pool of small-cap stocks that exhibit value characteristics currently have around a dozen different options to choose from. Within this relatively narrow pool, the Vanguard Small-Cap Value Index Fund ETF Shares (NYSEARCA:VBR) is considered one of the more established products, with $57bn worth of AUM accumulated over two decades. If you're mulling over a position in this product and are keen to understand its credentials better, here are a few things to note. Small-Cap Value: Active vs. Passive To get a more nuanced understanding of VBR's merits and drawbacks, we thought it would be appropriate to juxtapose it against the next biggest alternative in this space - the Avantis US Small Cap Value ETF (AVUV) with nearly $13bn in AUM. Even though both products fish for stocks from the same universe, note that the primary differentiator here is that AVUV is an actively managed ETF, whereas VBR tracks the CRSP US Small Cap Value Index. Needless to say, from a cost angle, a passively managed product will always come across as cheaper, and this works in favor of VBR with an expense ratio that is more than 3x lower than AVUV's corresponding ratio. However, what we found interesting is that even though VBR covers a wider pool of small-cap value stocks (around 850 stocks as opposed to 760 for AVUV), it still resorts to more churn on an annual basis (a turnover rate of 16% which is over 2x more than AVUV's turnover rate). We believe this could be driven by the number of screeners that VBR's tracking index employs when selecting small-cap stocks with high-value quotients. To elaborate, five key metrics are used, namely the inverse P/B ratio, PE ratios, both forward and historical, the dividend yield, and the inverse sales-to-price ratio. When you employ a smaller number of screening metrics, potential stocks have a lower number of barriers to clear, and thus annual churn will also be limited. Since AVUV is an actively managed product, investors won't get total clarity on some of the proprietary and discretionary screeners that it employs, but as AVUV is wise to point out, they don't just focus on stocks with low valuations, but also those with higher profitability ratio. To ascertain these two qualities, AVUV mainly sticks to the adjusted book value to price ratio, and the adjusted CFO coverage over book value. Investors who don't like to see a lot of volatility in their investments may gravitate to VBR as it has been able to consistently maintain a lower volatility profile than its actively managed peer, with a current differential of over 660 bps. YCharts Even from an income angle, VBR appears to have the edge, with a yield figure that is around 43 bps better than AVUV, but investors may want to consider that AVUV has been growing its dividends at a much faster pace in recent years. Over the past three years, AVUV has seen its dividends rise by 20%, whereas VBR's outflows have grown by only 13%. Then, even though AVUV's AUM may only be a fourth of the AUM of VBR, don't discount its growing clout. AVUV only got listed in September 2019, and it appears to have gained significant market share during this time. We can get a sense of this in the growth of the respective AUMs, and the growth of the price of these two ETFs since AVUV got listed. On a price basis, AVUV has outperformed VBR by 1.77x since its inception (which in itself is quite remarkable), but also consider the much superior percentage differential in the respective AUMs, which provides context on how fund flows appear to be going to the actively managed vehicle during this period. YCharts Some may find AVUV's growing popularity quite perplexing, given AVUV's steeper expense ratio, its utilization of limited screeners, a riskier profile, and a lower yield, but when it comes to juggling its risk profile and delivering superior returns, it looks to have a better grip on things, and this could well be driving its popularity. This is captured by the superior Sharpe ratio (looks at excess returns in the face of the standard deviation experienced) and the superior Sortino ratio (looks at excess returns in the face of harmful volatility) of AVUV. As noted earlier, AVUV typically takes on riskier bets, but those bets also typically tend to generate better payoffs, and this reflects well on the quality of active management on offer, even if it comes at a steeper price. YCharts Between these two products, it also appears that AVUV's holdings appear to have a much better trade-off with forward earnings and forward valuations. As things stand, VBR is priced at a forward P/E of 14.16x, which represents a 21% premium over the corresponding multiple of AVUV. Yet, despite being priced at a discount, AVUV's holdings are poised to deliver superior weighted average earnings growth that is over 150 bps better. Seeking Alpha, ETF prospectuses, Morningstar Closing Thoughts As implied in the previous section, VBR does have a few useful qualities, but it also does fall short in quite a few areas, and thus we wouldn't necessarily rate it as the most ideal buy. Yet, if you're prepared to digest some of its flaws, there are some other reasons why VBR may prove to be rewarding. Firstly, the growing prospect of 75 bps worth of interest rate cuts through the rest of 2024 should serve as music to the ears of these small-caps who are currently dealing with high-priced variable rate debt. For context, the proportion of variable rate debt for large caps was just 8% last year, whereas the corresponding share for small caps was almost 4x higher! Within the small-cap space, we think small-cap value looks more promising, as the growth-to-value ratio is yet to mean-revert to its long-term average of 0.84x. YCharts Also note that within the entire stock market, the small-cap value cohort looks like one of those pockets that still looks quite oversold, and has plenty of room to mean-revert. For context, the current ratio of small-cap value stocks to the total stock market is still 25% off its long-term average. VBR may not offer great value when compared to AVUV, but in relation to the total stock market, the valuation discount is still quite compelling at 35% (VTI is priced at a forward P/E of 21.85x). YCharts Finally, on VBR's standalone weekly chart, we're encouraged to note recent price developments. Since October last year, the ETF has been forming a bullish flag pattern. There were attempts to break out of its resistance zone in July this year (black line), but that did not come to pass, with the stock dropping to the $179 levels. It is the second time that the stock has re-tested its support zone, and bounced, and now with the momentum seen from a double-bottom formation, it looks set to break from resistance, and re-test and potentially form new highs.  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