The Divergence Of Small Value

When most investors think about different style boxes, whether it’s large cap growth stocks or small cap value stocks, they probably just take the label at face value. However, if you dig a little deeper, you’ll notice that just because funds share the same name, does not mean they are the same thing.

In the graph below, you’ll see three different versions of small cap value stocks. The red line is Vanguard, green is Dimensional Funds and blue is iShares. You’ll notice that these three funds have performed very differently since the earliest common inception date.

small cap value

In Morningstar’s style boxes below, we can see that Vanguard’s small cap value ETF, which tracks the CRSP US Small Cap Value index, tends to have more mid cap stocks than either Dimensional Funds or iShares. The average market cap of the stocks inside Vanguard’s ETF is $2.58 billion, while the average market cap of iShares and Dimensional Funds is $1.25 billion and $1.36 billion, respectively. We shouldn’t be surprised to learn that mid cap stocks have returned 158% since the earliest common inception, which might help to explain Vanguard’s outperformance (to be fair, I’m not 100% sure that the heavier weighting to mid caps is new or has been in place since the beginning) .



Lastly, the composition of the funds are very different. iShares has significantly more exposure to financials and significantly less exposure to industrials, compared with both Vanguard and Dimensional funds.

small val 4

Knowing what’s inside these products won’t necessarily help you determine which one will have the strongest returns over the next six months or three years. But understanding that there are dramatic differences can help to prevent you from hopping from one small cap value fund to the next.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.