As my readers know, I am a strong supporter of the importance of communication with our loved ones and the fellow human beings that we share our planet with, as this is really the only way to live life to its fullest.
Indeed, when investors come up to me at investment conferences, I am happy to answer their investing-related questions. One of these is whether small-cap stocks or large-cap stocks are a better investment to secure your financial future.
Adherents of the “large-cap-stocks-are-better” theory point to research by Jennison Dryden, indicating that investors are quicker to flee small-cap stocks for more stable large-cap stocks at the first sign of economic trouble. After all, small-cap stocks tend to be more volatile and can be strongly affected during times of market turbulence, particularly when the market is not doing well or when investors flee growth stocks for value stocks.
At the same time, growth-stock aficionados mention that small-cap stocks are often the first to bounce back during an economic recovery. One cause behind this is that small-cap companies can shift physical and economic resources more rapidly than a large corporation, enabling them to react more quickly to economic changes.
One way to generate profits from small-cap stocks is through the exchange-traded fund (ETF) Vanguard Small-Cap Growth ETF (NYSEARCA: VBK). While this fund should be familiar to my Successful Investing subscribers (and if you aren’t one, why not?), there are still some points about the fund that are worth mentioning.
The fund tracks a Center for Research in Security Prices (CRSP) index that focuses on growing small-capitalization companies within the United States. The index in question uses metrics such as three-year historical growth in earnings per share (EPS), growth in sales per share, current investment-to-assets ratio and return on assets to place small-cap stocks into different baskets. Securities then receive a rank and a weighting based on these factors.
Top holdings in the portfolio include Mutual Fund (Other), Fair Isaac Corp. (NYSE: FICO), Entegris, Inc. (NASDAQ: ENTG), Targa Resources Corp. (NYSE: TRGP), Exact Sciences Corp. (NASDAQ: EXAS), PTC Inc. (NASDAQ: PTC) and Liberty Media Corp. Series C Liberty Formula One (NASDAQ: FWONK).
As of June 6, 2023, this fund has been up 4.63% over the past month, up 9.11% over the past three months and up 12.86% year to date.
This ETF has total net assets of $14.33 billion and an expense ratio of 0.07%.
Chart courtesy of StockCharts.com.
While VBK is a way to ride the wave of small-cap growth stocks, investors should be aware of the risks associated with investing in such a fund and always do their due diligence before adding any stock or fund to their portfolio.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You may just see your question answered in a future ETF Talk.
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