VB vs VBR: Which One to Choose?
LAST UPDATED: April 4, 2023 | By Conrad Golly
Investing in ETFs can be an excellent way to diversify one’s portfolio and potentially earn a higher return on investment. However, with so many options available, it can be challenging to determine which ETFs to own. One common comparison is between Vanguard Small Blend (VB) and Vanguard Small Value (VBR). Both ETFs track small-cap stocks, but they have some key differences that investors should consider before making a decision.
VB vs VBR: VB is a passively managed fund that tracks the CRSP US Small Cap Index. It invests in a broad range of small-cap stocks, including those in the technology sector. On the other hand, VBR tracks the CRSP US Small Cap Value Index, which includes small-cap stocks that are considered undervalued by the market. This means VBR may have a higher potential for growth, but it also comes with a higher risk.
While both ETFs have their advantages and drawbacks, the decision on which to own ultimately depends on an investor’s risk tolerance, investment goals, and overall portfolio strategy.
In this article, we will explore the differences between VB and VBR in more detail to help investors make an informed decision on which ETF to add to their portfolio.
Table of Contents
VB vs VBR
What is VB?
VB is an exchange-traded fund (ETF) that tracks the performance of the CRSP US Small Cap Index. This ETF is managed by Vanguard and focuses on small-cap companies in the United States. VB has a low expense ratio of 0.05% and provides exposure to a diversified range of small-cap stocks.
What is VBR?
VBR is another ETF managed by Vanguard that focuses on small-cap value stocks in the United States. It tracks the CRSP US Small Cap Value Index and has an expense ratio of 0.07%. VBR provides exposure to value stocks, which are companies that are considered undervalued by the market.
Key Differences Between VB and VBR
While both VB and VBR are small-cap ETFs managed by Vanguard, there are some key differences between the two:
- VB has a lower expense ratio of 0.05% compared to VBR’s 0.07%.
- VBR focuses on small-cap value stocks, while VB provides exposure to a diversified range of small-cap stocks.
- VB has a higher exposure to the technology sector, while VBR has a higher exposure to the financial sector.
- VB has a lower standard deviation compared to VBR, meaning it is less volatile.
Key Differences Table For VB vs VBR
| VB | VBR | |
|---|---|---|
| Expense Ratio | 0.05% | 0.07% |
| Sector Exposure | Higher exposure to technology | Higher exposure to financials |
| Focus | Diversified range of small-cap stocks | Small-cap value stocks |
| Standard Deviation | Lower | Higher |
Which to Own?
Factors to Consider
When deciding between VB and VBR, investors should consider their investment goals and risk tolerance. VB has a higher exposure to the technology sector, which may be attractive to investors seeking growth opportunities. On the other hand, VBR has a higher exposure to small-cap value stocks, which may be appealing to investors seeking higher potential returns.
Investors should also consider the expense ratio of each ETF. VB has a lower expense ratio than VBR, which may be more attractive to investors seeking lower costs.
it’s important to note that expense ratios are not the only factor to consider when evaluating ETFs.
Advantages of Owning VB
One advantage of owning VB is its higher exposure to the technology sector. Over the past ten years, technology has been one of the best-performing sectors in the stock market. By investing in VB, investors can gain exposure to this high-growth sector.
Another advantage of owning VB is its lower expense ratio. With a lower expense ratio, investors can keep more of their returns and potentially achieve higher long-term performance.
Advantages of Owning VBR
One advantage of owning VBR is its higher exposure to small-cap value stocks. Historically, small-cap value stocks have outperformed other segments of the stock market over the long term. By investing in VBR, investors can potentially achieve higher returns.
Another advantage of owning VBR is its diversification benefits. VBR holds a variety of small-cap value stocks, which can help investors reduce their overall portfolio risk.
Investors should carefully evaluate their investment goals and risk tolerance before deciding between VB and VBR. Both ETFs have their own unique advantages and disadvantages, and the right choice will depend on the individual investor’s needs.
The Bottom Line: VB vs VBR
When it comes to choosing between VB and VBR, it ultimately depends on an investor’s individual goals and risk tolerance. VB, as a small-cap blend fund, offers higher exposure to the technology sector and lower standard deviation.
VBR, on the other hand, is a small-cap value fund with a higher expense ratio but potentially higher returns.
Investors who are looking for a broader exposure to the small-cap market may prefer VB, while those who are willing to take on more risk for potentially higher returns may opt for VBR.
It’s important to note that both funds are passively managed by Vanguard, which means they track their respective indexes and have low expense ratios compared to actively managed funds.
Another factor to consider is an investor’s overall portfolio diversification strategy. If an investor already has exposure to the technology sector and wants to diversify further, VB may not be the best choice.
Similarly, if an investor already has a significant allocation to small-cap value stocks, adding VBR may not provide enough diversification.
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The decision between VB and VBR should be made based on an investor’s individual goals, risk tolerance, and overall portfolio diversification strategy. It’s important to do thorough research and consult with a financial advisor before making any investment decisions.
