VBR Dominates Scale and Liquidity; ISCV Compensates With Competitive Yield

Performance tells the story first

When comparing the Vanguard Small-Cap Value ETF (NYSEMKT:VBR) and the iShares Morningstar Small-Cap Value ETF (NYSEMKT:ISCV), five-year returns reveal a meaningful gap. A $1,000 investment in VBR grew to $1,502 over five years, while ISCV reached $1,472—a $30 advantage for the Vanguard offering. More importantly, VBR’s maximum drawdown of 46.57% proved gentler than ISCV’s 50.84%, suggesting lower volatility through market turbulence.

The story behind this performance difference becomes clearer when examining fund mechanics. VBR’s beta of 1.01 indicates movement nearly in sync with the S&P 500, while ISCV’s 1.22 beta signals greater price swings. This volatility gap directly correlates to fund size: VBR’s $59.6 billion in assets dwarfs ISCV’s $574.6 million, creating a liquidity moat that stabilizes trading patterns.

Size, cost, and yield: where ISCV fights back

The expense ratio difference barely registers—0.06% for ISCV versus 0.07% for VBR. In practical terms, this represents just $1 per $10,000 invested annually, negligible for most investors. Where ISCV holds its own is dividend yield: 1.89% versus VBR’s 1.97%. For income-focused portfolios, this distinction matters on a multi-year timeline.

The one-year return snapshot shows ISCV gaining 3.3% compared to VBR’s 2.7%, suggesting recent tactical strength in the smaller fund’s positioning. However, this reversal doesn’t alter the fundamental advantage VBR holds: its massive AUM creates what traders call “tighter spreads,” meaning lower transaction costs for buyers and sellers.

Portfolio composition: similar mandates, different weightings

Both ETFs pursue small-cap value exposure but through distinct strategies. VBR holds 831 stocks across a strictly passive index, with sector concentration in Industrials (21.7%), Financial Services (19.8%), and Consumer Discretionary (14.2%). Top individual holdings—NRG Energy (NYSE:NRG), SanDisk (NASDAQ:SNDK), and EMCOR Group (NYSE:EME)—each represent less than 1% of assets, emphasizing true diversification.

ISCV takes a broader approach, holding over 1,100 names and reweighting sectors slightly differently: Financial Services (24.5%) leads, followed by Consumer Discretionary (13.5%) and Industrials (13%). This wider stock count spreads risk further, though it also fragments impact concentration. Largest positions—Annaly Capital Management (NYSE:NLY), Viatris (NASDAQ:VTRS), and Everest Group (NYSE:EG)—similarly occupy under 1% each.

Neither fund employs leverage, currency hedging, or exotic structures. Both operate as straightforward passive trackers of their respective small-cap value indices, with no hidden complexity.

Why small-cap value matters for diversification

Small-cap stocks represent companies earlier in their growth trajectories, typically valued between $300 million and $2 billion in market capitalization. Their advantage over large-cap peers lies in growth potential: smaller revenue bases can expand more dramatically than established Fortune 500 companies. The “value” component adds another layer—these firms trade at discounts to their fundamental metrics, meaning markets haven’t priced in their true earning power.

Index funds like VBR and ISCV democratize this exposure. Rather than cherry-picking 50 small-cap stocks individually (impossible for most retail investors to research), these ETFs deliver hundreds of companies with a single transaction. This is especially valuable when targeting lesser-known firms early in their expansion phases.

The verdict: VBR’s advantages stack up

Given VBR’s superior five-year performance, dramatically lower volatility, substantially larger asset base ensuring better liquidity, and marginally better dividend yield, the Vanguard Small-Cap Value ETF emerges as the stronger choice for most investors seeking small-cap value exposure. ISCV remains viable for those prioritizing marginally lower expenses or seeking slightly different sector tilts, but VBR’s 100-fold size advantage translates to real-world trading benefits that compound over years.

Quick reference guide

ETF: Exchange-traded fund—a tradable security holding a basket of assets like stocks or bonds

Expense ratio: Annual percentage fee charged by a fund to cover management and operational costs

Dividend yield: Annual dividends distributed as a percentage of current share price

Liquidity: The ease with which an investment can be bought or sold without moving its market price

AUM: Assets under management—total dollar value a fund oversees for investors

Beta: Volatility measure comparing an investment’s price movements to the S&P 500 benchmark

Max drawdown: Largest percentage decline from peak value to trough during a specified timeframe

Small-cap: Companies with market capitalizations typically between $300 million and $2 billion

Value stocks: Securities trading below their intrinsic worth relative to earnings, book value, or dividends

Sector allocation: Portfolio percentage distribution across industries like healthcare, technology, or financials

Passive investing: Strategy tracking a fixed market index rather than actively trading individual securities