Small Cap Value: IWN vs VBR

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Raspberry-503
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Small Cap Value: IWN vs VBR

Post by Raspberry-503 »

The highest ER ETF in my portfolio is for IWN, a small-cap value index fund that follows the Russell 2000 Value. At 0.24% it's still reasonable, but in researching TLH partners for the fund, I came up with VBR which follows the CRSP U.S. Small Value index but is 0.07% ER

I'm not savvy enough to understand the differences between the indexes or how to pick the "best" index as part of the value tilt of my portfolio, but they look pretty interchangeable to me, any reason I should stick with IWN at 3x the ER?

EDIT: looks like Vanguard also has its own Russell 2000 Value ETF: VTWV, so while it wouldn't work for TLH with IWN, its expense ratio is in the middle (0.15%) in case the Russe;l 2000 is the "better" index
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Re: Small Cap Value: IWN vs VBR

Post by placeholder »

I mostly use IJS.
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mrpotatoheadsays
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Re: Small Cap Value: IWN vs VBR

Post by mrpotatoheadsays »

Raspberry-503 wrote: Wed Oct 27, 2021 1:12 am any reason I should stick with IWN at 3x the ER?


Yes. The benefit of small cap value comes from research in academia. The conclusion was not to pick funds named "small cap value" with low expenses but to pick smaller small cap stocks and deeper value stocks in a fund. The smaller you get, without getting ridiculously small, and the deeper value your get is equivalent to "more risk; more return".

Go over to Morningstar and look at the portfolio analysis of the funds. You will find that many small cap funds, like VBR, are almost half mid cap stocks or larger. This mid cap approach has historically diminished the return. Therefore, cheapest is not always the best... a blind spot for Bogleheads.

Paul Merriman's team has already done this research for you. They concluded the best small cap value ETF is AVUV. They also recommend the following alternatives: VIOV, SLYV, IJS & RZV. Reference: https://paulmerriman.com/best-in-class- ... endations/

I went with SLYV. Ultimately, its high volume won me over AVUV. Looking at YTD return, it wasn't the best decision... +30% vs +41%.
sycamore
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Re: Small Cap Value: IWN vs VBR

Post by sycamore »

Raspberry-503 wrote: Wed Oct 27, 2021 1:12 am The highest ER ETF in my portfolio is for IWN, a small-cap value index fund that follows the Russell 2000 Value. At 0.24% it's still reasonable, but in researching TLH partners for the fund, I came up with VBR which follows the CRSP U.S. Small Value index but is 0.07% ER

I'm not savvy enough to understand the differences between the indexes or how to pick the "best" index as part of the value tilt of my portfolio, but they look pretty interchangeable to me, any reason I should stick with IWN at 3x the ER?

EDIT: looks like Vanguard also has its own Russell 2000 Value ETF: VTWV, so while it wouldn't work for TLH with IWN, its expense ratio is in the middle (0.15%) in case the Russe;l 2000 is the "better" index
Before switching funds, I'd at least learn a bit about the different indexes used by the various funds. A couple good references are https://www.morningstar.com/articles/842605/article and http://www.crsp.org/indexes-pages/key-c ... benchmarks. They're not quite interchangeable but there is a lot of overlap. Russell 2000 and S&P 600 reach further down into the small end of the market whereas VBR uses the CRSP small definition, which by contrast is a bit like a small/medium hybrid.

One reason some people prefer the S&P 600 (or their large/500 and mid/400 indexes) is that S&P uses a "quality" screen to select stocks of companies that at least have had some profitability.

Russell used to have a problem with losing out to "front running" but apparently they fixed that awhile ago.

I probably wouldn't sell & incur capital gains (in a taxable account) just to switch.
Wedemeyer
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Re: Small Cap Value: IWN vs VBR

Post by Wedemeyer »

Per the note above, you need to be knowledgeable about the index methodologies used: S&P, CRSP, Russell, other

For small value, I use VIOV (S&P small value) from Vanguard. Overall, VIOV has smaller sized companies than VBR (CRSP small value). The Russell small value (VTWV) contains too many microcap stocks for me. VIOV is kind of in the middle, and its stocks identify as small cap across all the indices.

As always, Vanguard ETFs ERs are reasonable.

Be knowledgeable of the differences in these indices, and comfortable with your selection.
Apathizer
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Re: Small Cap Value: IWN vs VBR

Post by Apathizer »

I know this might provoke accusations of heresy since this is a Vanguard forum, but Vanguard small-cap value ETFs are generally mediocre. Avantis Small Cap Value (AVUV) has a more rigorous, academic approach and has performed much better, though it doesn't have much history. It will probably be more volatile, but have significantly higher returns.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
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Re: Small Cap Value: IWN vs VBR

Post by placeholder »

Apathizer wrote: Sat Nov 06, 2021 2:36 pm I know this might provoke accusations of heresy since this is a Vanguard forum
That's incorrect.
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