VIOO - VTWO: Avoid Vanguard's Low-Quality Russell 2000 Index ETF
2024-01-25 02:11:16 ET
Summary
- VTWO is a low-cost Russell 2000 Index ETF with a 0.10% expense ratio and nearly $8 billion in assets. Unfortunately, it's also low-quality, and its valuation ratios are misleading.
- P/E ratios for ETFs exclude non-profitable stocks, and they make up 25% of VTWO. Adding them back in results in a weighted average P/E that exceeds Russell 1000 Index ETFs.
- Less popular ETFs like XSVM and CALF are gaining traction. These funds emphasize two or more factors (value, quality, and momentum). They've outperformed VTWO by 3% per year since 2017.
- Regardless of which factors you favor, there's substantial evidence that suggests the Russell 2000 Index is flawed, so I've assigned a "sell" rating to VTWO and IWM, iShares' equivalent.