As the late Kenny Rogers once intoned, “If you’re gonna play the game, boy you gotta learn to play it right…”
As I’ve learned, playing the game right is about winning bigger than you lose. Now, while that sounds like an obvious sentiment, it really means that the first “win,” or payout, shouldn’t be your last — have patience, and continue to let those successful investments mature.
On the subject of patience, let me add one further axiomatic bit of advice — building wealth really isn’t that hard. What I mean is, understanding the concepts is the simple part, practicing restraint and not deviating from your investment principles in search of a shortcut is the trickier part.
Suffice to say, patience and restraint may not be the most rousing of concepts, but they most certainly are useful in investing, especially when it comes to small-cap exchange-traded funds (ETFs).
Now, there is a chance that the mere mention of small-cap ETFs may nonplus some of my readers because, like many facets of the economy, the radical climb of interest rates has led the small-cap sector to underperform. However, it is likely that interest rates will lower toward year-end, and that means small caps will once again begin to outperform.
So, in true Renaissance fashion, let’s delve into today’s ETF — the Vanguard Small-Cap ETF (NYSEArca: VB).
VB is a passively managed small-cap fund with a goal of tracking the performance of the CRSP U.S. Small Cap Index, which measures the investment return of small-cap stocks. Thusly, the fund provides investors with a convenient way to match the performance of a diversified group of small companies.
The fund also offers solid diversification with growth equities accounting for about one-third of its holdings and value equities making up roughly 28% of its positions. Though the fund offers exposure to the bottom 2-15% of all tradeable assets, i.e., the investable universe, its holdings are mainly concentrated among industrials, financials, consumer discretionary stocks, health care and information technology.
With more than 15% of VB’s allocation in the information technology sector, investors are offered sound material growth exposure, which may help to offset some small-cap fund limitations such as high volatility and debt-dependence.
Not only is VB a massive fund with $54 billion in assets under management and $136 billion in net assets, it is highly liquid, with an average volume of more than 800,000 shares traded and a median 30-day bid/ask spread of roughly four basis points, according to Vanguard.
Moreover, VB provides a dividend yield of 1.49%, with payouts every three months that totaled $3.25 per share in the past year. The fund’s last ex-dividend date was March 22, 2024. In case that isn’t incentive enough, it’s a relatively affordable fund for factor-oriented investors with an exceptionally low expense ratio of 0.05%.
Chart Courtesy of stockcharts.com
The chart above offers a glimpse of why we are discussing VB today. While the fund saw a sharp decline in November, it not only recovered — but has continued to climb with gusto. VB’s 200-day moving average has shown an upward trend since December, and its 50-day moving average is fast approaching its 52-week-range high of $229.54.
The fund’s top 10 holdings include: MicroStrategy Incorporated (MSTR), 0.44%; Builders FirstSource, Inc. (BLDR), 0.44%; Targa Resources Corp. (TRGP), 0.43%; Deckers Outdoor Corp. (DECK), 0.42%; Axon Enterprise, Inc. (AXON), 0.39%; PTC Inc. (PTC), 0.37%; Entegris, Inc. (ENTG), 0.37%; Williams-Sonoma, Inc. (WSM), 0.35%; DraftKings Inc. (DKNG), 0.34% and Booz Allen Hamilton Holding Corp. (BAH), 0.33%.
In sum, playing the game is about knowing when to hold them, when to fold them and when to walk away. In VB’s case, interested investors may do well to hold them and watch them flourish.
With a rich dividend, a low expense ratio and strong liquidity, VB may lead to a winning hand.
So, with that, I will leave you with a quote from the American poet Henry Wadsworth Longfellow, a quote I find in keeping with restraint and avoiding shortcuts — “The heights by great men reached and kept were not attained by sudden flight, but they while their companions slept, were toiling upward in the night.”
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.
