New Trade for August 30th, 2021

Trading was muted to start the day as the month of August winds down.  It’s been a winning month for the three benchmarks, with two sessions left to go, the S&P 500 has logged 2.6% in monthly gains, the Nasdaq is up 3.1% and the Dow gained 1.5% for the month.  Let’s see where these next couple of days take us.  

Some of the most successful names of our time began as speculative small-caps.  Amazon was a $7 stock in 1998, and Tesla had a market valuation of just $1 billion in 2010.  Of course, not every small-cap company becomes a giant.  The truth is, some of today’s burgeoning small-cap names could cease to exist down the line.  

Investing in small caps can be highly rewarding but also comes with risks that need to be considered.   If you’re interested in adding small-caps to your portfolio but want to cut back on the risk, investing in ETFs can reduce the volatility associated with individual companies while adding an important layer of diversification to your portfolio because they provide exposure to a variety of stocks.

In today’s trade, we’ll highlight one small-cap growth fund that facilitates an investment in what could be the mega-caps of tomorrow.  

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Vanguard Small-Cap Growth ETF (VBK)

This fund leans toward the companies that aspire to become the next generation of stock market leaders.  Investors who buy VBK can potentially get in on the ground floor of the next industry leader.

The investment thesis behind small caps is that these firms are likely to provide strong growth prospects to a portfolio and should have a much easier time growing than their large-cap counterparts.  However, these securities are highly volatile and can experience significant losses or gains in a very short period of time.  Despite their uncertainty, these stocks add an important aspect to a well-rounded portfolio. They tend to move somewhat independently of large caps and can be a better ‘pure play’ on the American economy.  

VBK does an excellent job of dividing up assets as the fund holds more than 600 securities in total and doesn’t give anyone security more than 0.6% of the total assets. Thanks to this high level of diversification and VBK’s ultra-low expense ratio, the fund could make for a superb addition to portfolios of investors looking for small caps but seeking a higher risk/reward profile in the space. 

Vanguard Small-Cap Growth ETF (VBK) Data Summary

• Weighted Average Market Cap  $14.21B
• Price / Earnings Ratio   8.81
• Price / Book Ratio  5.36
• YTD Daily Total Return  6.83%
• Yield  0.45%
• Expense Ratio  0.07%
• Net Assets   $37.89B
• Number of Holdings  677