Small-cap value stocks have a long history of adding value to investors’ portfolios. (Pun totally intended!)

If you’re unfamiliar with small-cap value, here’s a comparison of returns from PortfolioVisualizer from 1972 through May 2021:

  • Total US Stock Market = 10.81%
  • Large-cap stocks = 10.72%
  • Small-cap value = 14.12%

Why the drastic outperformance?

Small-cap value stocks are small companies trading at low price-to-book (P/B), price-to-earnings (P/E), and/or price-to-cash flow metrics. Nobel Prize-winning research by professors Eugene Fama and Kenneth French has shown that small-cap value (SCV) stocks produce higher long-term returns than other types of stocks within the same market because of the unique risks inherent to being SCV stocks.

So the key question is this: Are small-cap value stocks adding value to your portfolio?

If not, what’s stopping you?

To make it easier for you to decide, I’ve ranked the 15 best small-cap value index ETFs (including 3 funds) to help you decide the best fit for your portfolio. I ranked each fund according to four metrics in a weighted decision matrix based on the weight I place on each component of the fund analyzed.

  1. Annualized Return (CAGR)
  2. Size factor exposure
  3. Value factor exposure
  4. My 2 cents!

At the end of this article, I’ll provide you with the final list and some commentary on why the funds are ranked as they are.

Here are the funds:


These are all index or index-ish funds. Why not include any actively managed funds?

Index investing is tough to beat in every segment of the market, but it’s nearly impossible to beat in the small-cap value realm.

According to the SPIVA® U.S. Year-End 2020 Scorecard, over the last 10-year period 96.88% of small-cap value funds FAILED to beat their benchmark index!

So what do I mean above when I describe some of the funds as index-ish?

A few of these funds I describe as hybrid index funds. These funds aim to match their benchmark with about 80% accuracy but leave room for fundamental decision-making. AVUV and PSOAX are two examples of adding an element of active management to a mostly indexed approach. They may overweight certain stocks that they expect to do especially well while minimizing exposure to others they expect to perform poorly. Will this strategy work? We’ll see.

Dimensional Fund Advisors seems to make the case that it does!

Two of the Invesco funds, RWJ and XSVM, are also unique index funds. RWJ is revenue-weighted rather than cap-weighted and XSVM combines the momentum and value factors together in the S&P SmallCap 600. Interesting stuff!

Small-cap Value Funds Ranked by Return (CAGR)

The return reported is the CAGR (compound annual growth rate). The CAGR is the compounded growth rate of the fund between two points in time. The CAGR is the true measure of an investment’s growth external to its volatility.

Table 2. Compound Annual Growth Rates (CAGRs) of each small-cap value fund over various time frames. All returns are total returns, accounting for dividends, distributions, and all expenses.


The first three funds stand out. Their return over the last 15 months is just astounding! But as you look down the first row it’s obvious that not all small-cap value funds are made the same.

I ended up ranking them mostly on their returns from Jan 2011 – Mar 2021. But I also considered two additional factors: 1) their short-term returns over the last 15 months and 2) a bit of a projection based on the index they tracked since some of these funds have such limited data due to being new.

The S&P SmallCap 600 beat the Russell 2000

Did you notice this trend?

The funds tracking the S&P 600 SmallCap Index consistently beat those tracking the Russell 2000 Value Index, with two exceptions.

SLYV, IJS, VIOV all had better long and short-term returns than VTWV, IWN, PSOAX.

XSVM and RWJ had the two highest returns. While the S&P 600 SmallCap Index is their parent benchmark, they come with some twists. RWJ is “revenue-weighted” rather than “market-cap-weighted”, which is a unique take on value.

XSVM combines both the value and momentum factors into one fund, which is pretty awesome if you’re building a factor-based portfolio!

The two exceptions to the S&P SmallCap 600 outperforming the Russell 2000 Value Index are AVUV and RZV.

AVUV tracks the Russell 2000 but with some active management. It performed extremely well. Meanwhile, RZV, which tracks the S&P SmallCap 600, has done quite poorly which surprised me.

The CRSP Index Funds

Two funds, BRSIX and VBR (VSIAX), track CRSP Indexes.

This is cool because it’s the CRSP Indexes that are used in academic research. I had higher hopes for their returns and exposures, though!

BRSIX has very strong returns but it specifically invests in the CRSP 10 Index, which is a microfund index. The current median market-cap weight of BRSIX is $258M vs. $5.7B for VBR. So a huge difference in the size of companies held in each fund.

The microcap weight of BRSIX likely explains its superior returns more so than its value exposure, as you’ll see below.

Small-cap Value Funds Ranked by Size Factor Exposure

If you’re unfamiliar with factor investing, that’s the research that’s provided the explanation for why small-cap value stocks have historically produced higher returns.

Factors are anomalies that have been found to explain the difference in returns between two stocks or groups of stocks. Much academic work has gone into identifying which of the hundreds of factors that have been datamined are actually valid.

Fortunately, there are a few! And size (small-cap stocks) and value (stocks currently out of favor) are two of the strongest factors.

But if you want to learn more about it, check out these articles for later (they open in a new tab):

And yes, even if you’re a VTSAX & chill investor you’re still a factor investor! So may as well go get you some of those higher returns that small-cap value offers!

Related reading: Total Stock Market Investors are Factor Investors

Without further adieu, here are the funds ranked by size factor exposure!

Table 3. Ranking the small-cap value funds according to their size factor exposure over various time frames. (Using the Fama & French research factors.)


The first thing that pops out to me is that the four funds with the highest return from Table 2 are all in the bottom half of size exposure.

It’s important to realize that while size is an important factor, it’s the weakest one. In fact, most research shows that while size itself is not a huge factor that the other factors (e.g. value, momentum, profitability, investment) are bigger in small-cap stocks than in large stocks.

So perhaps that’s why we’re seeing the disconnect between returns and size here.

Note also that the funds tend to remain somewhat grouped by their index benchmark.

Small-cap Value Funds Ranked by Value Factor Exposure

Alright, time to see how these funds rank according to their value exposure.



The first seven funds for Tables 3 and 4 are the same with only slight differences in order. This is interesting because yet again, the four funds with the highest returns are in the bottom half for value exposure.

I believe the discrepancy between returns and value exposure gets at two key points:

  • Value can be measured in multiple ways. Which way is best is still up for debate. This is why I believe there’s some room for managers to perform fundamental analyses and deviate from following the index with great success.
  • Value has underperformed growth during the timeframes included in Table 4. Growth and value often alternate between which is currently doing well. The past decade+ has seen growth, especially large-cap growth, perform outrageously well. But don’t discount value! While value didn’t beat growth it still didn’t do poorly!

Finally, at times it’s possible to have a value fund not actually have value exposure! (Note the lack of value factor exposure for the three funds with red exposures over the last 15 months.) Of course, this is only over a very short time. Over the longer time frame, all funds had significant value exposure.

Proof that the best returns are with small things that add value to your life! Pic is of Lake Oschinnensee in Kandersteg Switzerland.

Ranking the Best Small-Cap Value Index Funds & ETFs

After all that, here is my ranking based on the data and what I believe to be true of each of the funds.


Here’s my reasoning for each of the tiers.

Top Tier

The performance by these four funds is outstanding!

While their value and size exposure wasn’t the highest by comparison to the other funds, in comparison to an S&P 500 Index fund these have significantly more exposure to the size and value factors. That’s the important thing.

BRSIX has the longest history. Since its inception in 1997, BRSIX has DOUBLED the S&P 500 Index (1,194% total return vs. 582%)!!! This highlights the reward for those willing to accept the higher volatility and take this tilt.

Despite periods of underperforming the S&P 500, you must also remember (and be aware of!) the times that small-cap value funds beat the S&P 500 and by how much!

AVUV is from a new company called Avantis. They are similar in approach to the Dimensional Fund Advisors (DFA) in that they add a fundamental take on index investing. I’m a huge fan of what they’ve done and what they’re offering to DIY investors like myself! AVUV is probably the best pure small-cap value fund on this list if that’s what you’re looking for.

RWJ offers a unique take on small-cap value. While not a pure value fund, weighting its holdings by revenue naturally leads to a large overlap with value. So RWJ indirectly falls into the small-cap value family. I like including it as a diversification move inside your small-cap value allocation.

XSVM is very intriguing. According to Larry Swederoe’s book Your Complete Guide to Factor-Based Investing: The Way Smart Money Invests Today and the academic research, momentum has the highest premium (excess return) of all of the known factors. But momentum is a challenging factor to capture! Fortunately, Invesco was ahead of their time and this fund appears to be capturing a great blend of the value and momentum premiums!

Second Tier

I couldn’t really distinguish much between these funds. They’re mostly S&P SmallCap 600 Index funds with the exception of VBR.

In general, these funds are more straightforward index funds. Very similar returns and factor exposure with little separation between them.

VBR was the lowest-performing fund and the only fund tracking a different index. I included VBR in the 2nd tier due to it tracking the CRSP Small-Cap Value Index. I’m a fan of CRSP and Vanguard coming together and offering DIY investors like you and me the opportunity to invest in the same index used in academic research.

Third Tier

Mostly consisting of Russell 2000 Value Index funds, the third tier was good but not great.

The last decade saw such strong performance by large-cap growth stocks that small-cap value stocks were forgotten or talked about as being “done for”. But the funds in the Top Tier fared almost as well with some very strong periods, despite small-cap value being “out of favor”.

Conclusions & Applications

A small-cap value tilt adds significant value to an investment portfolio from both return and diversification perspectives.

Related reading: Modern Diversification – Factor-Based Portfolio Diversification

If you already invest in small-cap value, how does your fund stack up with these?

I’ll share that I have been investing in VBR but intending to do a deep dive like this for quite some time. Now that I finally did this, I see a couple of changes that I’m going to implement.

But I’ll implement these changes understanding that there WILL be more times in the future of small-cap value underperforming the S&P 500. I’ll be patient. I’ll still be diversified and I’ll still continue investing.

So, good luck to you in your investing! May the small-cap value be with you!



PS – If you learned something please share below, thanks! If you would like to follow KI$$ on Facebook or Twitter please join the communities there!

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