Exploring the Performance of Vanguard’s Small-Cap ETFs: A Closer Look at VIOO
Vanguard’s VIOO ETF, which passively tracks the S&P SmallCap 600 Index, is a popular choice for investors seeking small-cap exposure. With its quarterly rebalancing and low fees, VIOO has gained a following among those interested in this market segment. However, its recent underperformance compared to other Vanguard small-cap ETFs, such as VBR, has raised some concerns.
Comparing VIOO to Other Vanguard Small-Cap ETFs: VBR
VBR, another Vanguard ETF, also passively tracks the S&P SmallCap Index. While both ETFs share a similar investment strategy and index, VIOO has underperformed VBR in recent years. For instance, from 2015 to 2021, VBR returned an average of 11.5%, while VIOO returned an average of 9.2%.
Understanding the Reasons Behind VIOO’s Underperformance
The reasons behind VIOO’s underperformance can be attributed to its higher volatility and poor risk-adjusted returns. Volatility, a measure of the fund’s price fluctuations, is a significant factor in determining an investment’s risk. A higher volatility indicates greater risk, and VIOO’s volatility is approximately 15% higher than VBR’s.
Risk-Adjusted Returns and Sharpe Ratio
Risk-adjusted returns, on the other hand, provide a more comprehensive view of an investment’s performance by comparing its returns to the risk it takes on. A commonly used metric to assess risk-adjusted returns is the Sharpe ratio. The Sharpe ratio for VIOO is approximately 0.3, which is lower than VBR’s ratio of 0.5. A lower Sharpe ratio indicates that the fund’s returns do not justify the risk it takes on, making it a riskier investment.
Impact on Individual Investors
For individual investors, VIOO’s underperformance and higher risk profile may make it a less attractive option. Those seeking small-cap exposure with a lower risk profile might consider VBR or other small-cap ETFs with better risk-adjusted returns.
Impact on the Wider World
At a broader level, VIOO’s underperformance could have implications for the ETF market as a whole. While ETFs are generally seen as passive investment vehicles, underperformance can lead to investor redemptions, which can in turn impact the market. Furthermore, if VIOO’s underperformance is indicative of broader trends in the small-cap market, it could impact the overall performance of portfolios with significant small-cap allocations.
Conclusion
In conclusion, Vanguard’s VIOO ETF, which tracks the S&P SmallCap 600 Index, has underperformed compared to other Vanguard small-cap ETFs like VBR. This underperformance can be attributed to VIOO’s higher volatility and poor risk-adjusted returns, indicated by a low Sharpe ratio. For individual investors seeking small-cap exposure with a lower risk profile, VBR or other small-cap ETFs with better risk-adjusted returns may be more suitable options. At a broader level, VIOO’s underperformance could have implications for the ETF market and the small-cap market as a whole.
- Vanguard’s VIOO ETF underperformed VBR from 2015 to 2021.
- VIOO’s higher volatility and poor risk-adjusted returns make it a riskier investment.
- Individual investors seeking lower risk small-cap exposure may consider VBR or other ETFs.
- VIOO’s underperformance could have implications for the ETF and small-cap markets.
