All Indexes Are Not Created Equal

Small value stocks are up 25.5% YTD. Small value stocks are up 32.5% YTD. Nope, that’s not a typo. The first one represents Vanguard’s ETF, VBR. The second and better performing small-cap value ETF is IWN, from iShares.

As you can see from the chart below, they were neck and neck until the election, and then IWN kicked into high gear. The reason for this divergence is 29% of IWN is in financials, VBR is just 18%. Does this mean that iShares is the “better” option? Of course not, at least not due to twelve months performance. Over the last five years, IWN has returned 107%, while Vanguard’s offering is up 121% over the same time (also, does not mean Vanguard’s is superior).


Who could have predicted in the beginning of the year that the difference in exposure to financials would be the cause of such a large discrepancy in performance? I don’t think anyone. The main takeaway for investors is this, expect (and accept) that you will see differences within the same category. Sometimes the difference will be in your favor, other times not. Switching between products out of frustration due to short-term fluctuations is a sure way to detract from potential long-term returns.

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