Why Vanguard Small-Cap ETF Is One of the Best

Key Morningstar Metrics for Vanguard Small-Cap ETF

• Morningstar Medalist Rating: Gold
• Process Pillar: Above Average
• People Pillar: Above Average
• Parent Pillar: High

Vanguard Small-Cap ETF VB

offers a well-diversified, low-turnover portfolio that is representative of the US small-cap market. These features, coupled with a minuscule fee, make it one of the best small-cap exchange-traded funds available.

The ETF tracks the CRSP US Small Cap Index, which sweeps in all small-cap US stocks that meet its market-cap criteria and are sufficiently easy to trade. These requirements help ensure the index represents its opportunity set and is easy to track. CRSP also takes measures during rebalances to make it more difficult for stocks to enter or exit the portfolio. This reduces turnover and the associated transaction costs, which can run high for difficult-to-trade small-cap stocks.

Vanguard Small-Cap ETF weights its holdings by market cap, an efficient approach that harnesses the market’s consensus opinion of each stock’s relative value. Stocks that grow in size take up a larger share of the portfolio, while smaller companies that may be struggling take on a less important role. Market-cap weighting also helps rein in turnover and promotes diversification. Annual turnover has averaged 15% for the 10 years through 2024—a fraction of the small-blend average of 59%. The top 10 holdings account for just a few percentage points of the portfolio, minimizing stock-specific risk.

The fund’s sector allocations and style orientation usually mimic the category average, which helps translate the fund’s low fee into a distinct performance advantage. Only the ETF’s financial-services sector allocation deviated from the category norm by more than 2 percentage points at the end of September 2025. Stocks from that sector receive about 4% less weight than the category average.

The small-cap market tends to be quite volatile, but that volatility can breed periods of exceptional performance, such as after market crashes. Small caps tend to fall faster than their larger peers but rebound faster. Vanguard Small-Cap ETF’s low fee and turnover-conscious approach can help it capitalize on these periods of outperformance while controlling for unnecessary risk. That has translated into a strong long-term track record. For the 10 years through October 2025, it returned 10% a year on average and outpaced the category norm by 1.75 percentage points annualized.

Vanguard Small-Cap ETF: Performance Highlights

The ETF outperformed the category average by 1.78 percentage points annualized from its 2004 inception through October 2025. Its larger-than-average market cap limited drawdowns, helping the fund earn a sturdy risk-adjusted return advantage.

Turnover-friendly index rules helped Vanguard Small-Cap ETF achieve its sizable advantage. For example, market-cap weighting and leniency around the upper market-cap bound allow for fast-growing companies to remain in the portfolio long after they’ve crossed into mid-cap territory. AppLovin APP, now a large-cap company, was a leading contributor to the ETF’s performance over the last five years. The communications-services stock returned over 450% when held by Vanguard Small-Cap ETF.

The fund usually holds several stocks too large to be considered for most small-cap index funds. Their inclusion allows Vanguard Small-Cap ETF to receive the full benefit of a small stock’s rise into mid-cap territory, and it helped the fund realize 103% of the category norm’s upside since 2004.

The fund’s larger size also offers some reprieve during down markets, protecting investors from downturns more effectively than the average of its peers. A larger allocation to mid-cap companies than some peers should marginally help contain volatility and drawdowns during periods of market stress. Vanguard Small-Cap ETF has captured 97% of the category average’s downside since 2004.