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Vanguard Small-Cap Index Fund ETF Shares

VB:NYSE

equity ETF | passive | Vanguard | Tracks CRSP

Market Price

US$273.99 (26 Jan 2026)

+14.27% (YoY)

NAV

US$274.65

-0.24% Discount

Yield

1.33%

0.00% (YoY)

Expense Ratio

5.00%

-95% vs Avg: 108.30%

Box Set (ETF)

⚡ Executive Summary

📊 The Bottom Line

This ETF tracks the CRSP US Small Cap Index, providing diversified exposure to small-capitalization US companies. With an ultra-low expense ratio of 0.05% and tight tracking, it's an efficient way to access this market segment. The bull case projects NAV reaching US$329.58 (+20%) while the bear case suggests US$233.45 (-15%) over the next 12-18 months.

⚖️ Risk vs Reward

The underlying small-cap holdings offer compelling long-term growth potential, but trade at a P/E of 21.6x, reflecting reasonable but not cheap valuations. Historically, small-caps exhibit higher volatility than large-caps, making them sensitive to economic cycles. While VB benefits from low fees and strong diversification, the asset class itself carries elevated risk. The potential upside of 20% is attractive given the low expense ratio, but the downside risk of 15% should be considered in current uncertain market conditions.

🚀 Why VB Could Soar

• Economic Growth Reacceleration: A domestic economic rebound could boost small-cap earnings by 15-20%, driving proportional share price appreciation over 12-18 months. (Probability: Medium)
• Valuation Re-rating: If small-cap multiples expand to historical averages relative to large-caps, a 10-15% multiple expansion could elevate NAV. (Probability: Medium)
• Reduced Interest Rate Pressure: Future Federal Reserve rate cuts would lower borrowing costs for smaller companies, enhancing profitability and adding 5-10% to returns. (Probability: High)

⚠️ What Could Go Wrong

• Economic Recession and Earnings Decline: A severe downturn could trigger 20-25% small-cap earnings contraction, leading to a 25-30% drop in NAV. (Probability: Low)
• Persistent Inflation and Higher Rates: Sustained high inflation forcing hawkish Fed policy would hurt small-cap companies with higher debt, causing a 10-15% NAV decline. (Probability: Medium)
• Underperformance of Growth Stocks: If the recent recovery in growth-oriented small caps falters, the ETF could dip 5-10% due to shifts in market sentiment. (Probability: Medium)

🏢 Fund Overview

What Are You Actually Buying

The small-capitalization equity market in the US comprises companies typically falling within the bottom 2%-15% of the total investable market capitalization.
This segment is characterized by higher growth potential due to its exposure to emerging businesses and innovative ventures, but it also carries increased volatility and risk compared to larger, more established companies.
Small-cap stocks are generally diversified across various sectors and can exhibit periods of exceptional performance, especially during economic recoveries or after market downturns.
These companies are often more sensitive to domestic economic conditions and interest rate fluctuations, making their performance closely tied to the overall health of the US economy.

Market Dynamics & Outlook

US small-cap valuations are currently considered reasonable, though persistent downside risk remains, particularly in the event of an economic recession.
The sector has recently seen a recovery, with growth-oriented small-caps showing signs of life after periods of weakness, suggesting potential for continued upside if economic growth accelerates.
However, the small-cap market tends to be quite volatile, with these stocks historically falling faster but also rebounding quicker than their larger counterparts during market cycles.
The financial services sector, a significant component of small-cap indices, is slightly underweighted in VB compared to the category average, which could influence its relative performance.

🎯 Why This Matters

Understanding the small-cap market's inherent volatility and its sensitivity to economic cycles is critical for investors. While offering compelling growth opportunities, particularly through a diversified, low-cost vehicle like VB, this segment requires a higher risk tolerance and a longer investment horizon to potentially realize its full potential.

📈 Valuation & Analysis

Historical Performance

YTD

+6.48%

+8.87%

Yearly Growth (3Y)

+13.70%

Yearly Growth (5Y)

+7.34%

Yearly Growth (10Y)

+10.43%

Yearly Growth (Since Inception)

+9.26%

Current Valuation

The ETF's underlying holdings trade at an aggregate price-to-earnings (P/E) ratio of 21.6x and a price-to-book (P/B) ratio of 2.4x. These valuation metrics, coupled with a 30-day SEC yield of 1.36%, position the fund's holdings within a reasonable range, neither significantly undervalued nor overstretched. The median market capitalization of companies within the ETF is US$9.4 billion, indicating a blend of small and mid-cap exposure. While current valuations are considered fair, the small-cap segment's sensitivity to economic conditions suggests that further re-rating could occur with strong economic growth, but also implies downside risk if economic activity falters.

The Bull Case - Upside to

Economic Growth Reacceleration

Medium Probability

A rebound in economic growth, particularly domestic, would disproportionately benefit small-cap companies, leading to potential 15-20% earnings growth and subsequent share price appreciation over 12-18 months.

Valuation Re-rating

Medium Probability

If small-cap valuations re-rate to their historical averages relative to large caps, a 10-15% multiple expansion could occur, driving ETF NAV higher.

Reduced Interest Rate Pressure

High Probability

Future Federal Reserve rate cuts would alleviate borrowing costs for smaller companies, improving profitability and potentially adding 5-10% to returns.

The Bear Case - Downside to

Economic Recession and Earnings Decline

Low Probability

A severe economic downturn could see small-cap earnings decline by 20-25%, leading to substantial share price compression and a 25-30% drop in NAV.

Persistent Inflation and Higher Rates

Medium Probability

If inflation remains elevated, forcing the Fed to maintain higher interest rates, small-cap companies with higher debt burdens would suffer, potentially causing a 10-15% NAV decline.

Underperformance of Growth Stocks

Medium Probability

If the recent recovery in growth-oriented small caps falters, the ETF could underperform, as these segments are susceptible to shifts in market sentiment, leading to a 5-10% NAV dip.

Risk/Reward Assessment

Considering the current landscape, investors in VB face a balanced risk-reward profile, heavily influenced by the trajectory of the US economy. The diversified nature of small-cap exposure offers a robust way to tap into potential higher growth rates, particularly if economic conditions improve and corporate earnings strengthen beyond current expectations. This could lead to meaningful capital appreciation, justifying current valuations. However, the segment's inherent sensitivity to economic cycles means that any downturn or persistent inflationary pressures leading to sustained high interest rates would disproportionately impact small-cap companies. The valuation, while reasonable, does not offer a significant margin of safety against adverse macroeconomic shocks. For long-term investors with a higher risk tolerance, the ETF presents a compelling opportunity to participate in the small-cap growth story, but it demands careful monitoring of economic indicators.

Peer Comparison

• VB offers a highly competitive expense ratio of 0.05%, providing a cost advantage over many peers, including IJR (0.06%) and IWM (0.19%), making it more cost-efficient for long-term holdings. • The fund demonstrates tight tracking with a 0.03% tracking error, aiming to closely replicate its benchmark's performance, which is crucial for a passively managed index fund. • With US$69.0 billion in AUM, VB offers ample liquidity, though IJR and IWM have larger AUMs, reflecting significant market interest in small-cap exposure. • While VB's yield of 1.36% is comparable to its peers, its comprehensive diversification across over 1,300 holdings offers broader market representation than IJR's 644 holdings.

Fund	Expense Ratio	AUM (B)	1Y Return	3Y Return	5Y Return	Yield
Vanguard Small-Cap Index Fund ETF Shares (VB) ⭐	5.00%	US$69.0B	8.87%	13.70%	7.34%	1.36%
iShares Core S&P Small-Cap ETF (IJR)	6.00%	US$94.2B	7.21%	10.92%	7.71%	1.40%
iShares Russell 2000 ETF (IWM)	19.00%	US$76.3B	16.60%	13.33%	5.23%	1.13%

🎯 Why This Matters

The valuation and peer comparison highlight VB's cost-effectiveness and broad diversification as key advantages. Investors should consider its strong tracking capabilities and relatively lower expense ratio against the slightly higher AUM and trading volumes of some competitors. The choice ultimately depends on the investor's priority for cost, diversification, and specific index exposure within the small-cap segment.

📊 Appendix

Top 10 Holdings (80+ of ETF Value)

#	Ticker	Logo	Name	Sector	Weight
1	NRG	N	NRG Energy Inc.	Utilities	0.5%
2	INSM	I	Insmed Inc.	Healthcare	0.4%
3	SOFI	S	SoFi Technologies Inc.	Financials	0.4%
4	FIX	C	Comfort Systems USA Inc.	Industrials	0.4%
5	EME	E	EMCOR Group Inc.	Industrials	0.4%
6	ATO	A	Atmos Energy Corp.	Utilities	0.4%
7	ALAB	A	Astera Labs Inc.	Technology	0.4%
8	PSTG	P	Pure Storage Inc.	Technology	0.4%
9	FWONA	L	Liberty Media Corp-Liberty Formula One	Consumer Cyclical	0.4%
10	PTC	P	PTC Inc.	Technology	0.4%

Fund Mechanics

How It Works

The Vanguard Small-Cap Index Fund ETF Shares (VB) employs a passive indexing investment approach, meticulously designed to mirror the performance of the CRSP US Small Cap Index. This benchmark is a broadly diversified measure of small-capitalization US companies. To achieve its objective, the fund primarily invests in all, or substantially all, of the stocks that constitute the index, maintaining each stock's proportion closely aligned with its weighting in the underlying index. The CRSP US Small Cap Index itself is constructed to include US companies whose market capitalizations fall within the bottom 2% to 15% of the investable market. The methodology emphasizes a full-replication strategy, ensuring that the ETF closely tracks its benchmark. This approach also aims to minimize portfolio turnover, which can be particularly beneficial in the small-cap segment where trading costs can be higher. The index undergoes regular reviews, typically on a quarterly basis, to ensure it accurately reflects the evolving small-cap market.

Holdings Breakdown

Number of Holdings

1324

Top 10 Concentration

410.0%

Turnover Rate

1290%

Category	Weight	Description
Industrials	22.3%
Consumer Discretionary	14.5%
Financials	14.2%
Technology	13.6%
Health Care	11.3%
Real Estate	7.1%
Energy	4.1%
Utilities	3.9%
Basic Materials	3.8%
Consumer Staples	3.3%
Telecommunications	1.8%
Other	0.0%

Cost Efficiency

Expense Ratio

5.00%

Median Bid-Ask Spread

55.000%

Metric	1 Year	3 Year	5 Year
Tracking Error	3.00%	N/A	N/A
Tracking Difference	1.00%	4.00%	4.00%

Performance History

Year	ETF Return	Benchmark Return	Tracking Diff	Volatility	Max Drawdown	Sharpe Ratio
2025	8.87%	8.82%	0.05%	N/A	N/A	N/A
2024	14.13%	14.22%	-0.09%	N/A	N/A	N/A
2023	18.31%	18.09%	0.22%	N/A	N/A	N/A
2022	-17.63%	-17.64%	0.01%	N/A	N/A	N/A
2021	17.67%	17.71%	-0.04%	N/A	N/A	N/A
2020	19.15%	19.07%	0.08%	N/A	N/A	N/A
2019	27.44%	27.35%	0.09%	N/A	N/A	N/A
2018	-9.38%	-9.33%	-0.05%	N/A	N/A	N/A
2017	16.24%	16.24%	0.00%	N/A	N/A	N/A
2016	18.35%	18.26%	0.09%	N/A	N/A	N/A

Annualized Return Since Inception

9.26%

Detailed Peer Comparison

Ticker	Name	Issuer	Exp Ratio	AUM (B)	1Y	3Y	5Y	Yield	StdDev 3Y	Sharpe 3Y	Spread
VB ⭐	Vanguard Small-Cap Index Fund ETF Shares	Vanguard	5.00%	US$69.0B	8.9%	13.7%	7.3%	1.36%	17.94%	0.48	55.000%
IJR	iShares Core S&P Small-Cap ETF	iShares	6.00%	US$94.2B	7.2%	10.9%	7.7%	1.40%	N/A	N/A	1.000%
IWM	iShares Russell 2000 ETF	iShares	19.00%	US$76.3B	16.6%	13.3%	5.2%	1.13%	19.89%	N/A	0.000%
Category Average			108.30%	—	10.4%	9.7%	5.2%	1.94%	—	N/A	—

Risk Metrics

Beta

1.26

Alpha

-0.03

R-Squared

1.00

Standard Deviation

1 Year	3 Years	5 Years	10 Years
N/A	17.94%	N/A	N/A

Sharpe Ratio

1Y	3Y	5Y	10Y
0.56	0.48	0.36	0.59

Sortino Ratio

3 Years	5 Years
0.94	N/A

Maximum Drawdown

1 Year	3 Years	5 Years	Since Inception
N/A	N/A	28.00%	N/A

Upside Capture

16100.0%

Downside Capture

9600.0%

Correlations

Liquidity & Trading

Volume

Avg Daily Shares

734,063

Avg Daily Dollar Volume

US$201.2M

Trend

stable

Bid-Ask Spread

Metric	Value
Median (Percent)	55.000%
Median (Dollar)	US$1.50
During Hours	N/A
At Close	N/A
Volatility	low

Premium/Discount to NAV

Metric	Value
Current	-24.00%
30-Day Average	0.00%
1-Year Average	N/A
Standard Deviation	N/A
Max Premium (1Y)	2.00%
Max Discount (1Y)	-4.00%

Creation/Redemption Activity

Trend

stable

Net Flows

Period	Net Flow

⚠️ Disclaimer: This ETF research report is for informational and educational purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell securities. EC² Invest is not a registered investment advisor. All data is sourced from public sources and may contain errors. Past performance does not guarantee future results. ETF investing involves risk, including possible loss of principal. Always conduct your own research and consult with a qualified financial professional before making investment decisions.