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ETF Specialist

Cheap Exposure to Small-Growth Stocks

This ETF's significant cost advantage should translate into attractive category-relative performance.

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 Vanguard Small-Cap Growth ETF (VBK) is one of the lowest-cost small-cap growth funds available, which gives it a sustainable edge against its peers. Its broad, market-cap-weighted portfolio effectively diversifies risk, and it applies generous buffering rules to mitigate unnecessary turnover.

This strategy targets stocks representing the half of the U.S. small-cap market with the highest growth rates and valuation ratios and weights them by market capitalization. This brings in more than 600 holdings, such as Buffalo Wild Wings (BWLD), Churchill Downs (CHDN), and Fitbit (FIT). Small-growth firms have greater growth potential than their larger counterparts, but they also tend to be riskier. There is always a risk that the fund’s holdings may not live up to the high expectations reflected in their valuations, which could hurt performance. Most of the fund's holdings lack durable competitive advantages and exhibit greater volatility than larger stocks. Because of its volatility, this fund is most appropriate as a satellite holding for investors with a high risk tolerance.

Alex Bryan has a position in the following securities mentioned above: VBR. Find out about Morningstar’s editorial policies.