Latest news with #VanguardRussell2000ETF
Yahoo
23-05-2025
- Business
- Yahoo
Is the Vanguard Russell 2000 Index Fund ETF a Buy Now?
The small cap-focused Russell 2000 index has historically outperformed during bull markets. But with relatively less exposure to AI, small caps have lagged large caps recently. The Russell 2000 is now trading at a significant discount to the S&P 500. 10 stocks we like better than Vanguard Russell 2000 ETF › The Russell 2000 is supposed to outperform in bull markets, but that hasn't been the case recently. Since the start of 2023, the Vanguard Russell 2000 Index Fund (NASDAQ: VTWO) -- an exchange-traded fund (ETF) -- is up just 19% compared to a 55% gain for the S&P 500. The small-cap index tends to outperform in bull markets because its components are more volatile and have more growth potential. However, in the current bull market, the gains have been dominated by artificial intelligence (AI) stocks such as the "Magnificent Seven," and relatively little of the spoils have gone to small-cap stocks. With tariffs shaking up the market and the AI boom entering its next stage, that could change. Let's take a look at what would drive small-cap stocks higher and whether you should buy the Vanguard Russell 2000 Index ETF today. A number of factors could drive the Russell 2000 higher. One is lower interest rates. The Russell 2000 tends to have more exposure to interest rates because many of its components are unprofitable and have proportionally more debt than large caps. The Russell 2000 also has a significantly lower valuation than the S&P 500, with the Vanguard small-cap ETF trading at a price-to-earnings ratio of 17 versus 26 for the S&P 500. That's a significant discount for stocks that have often been more expensive than their large-cap peers. Yet, small-cap stocks typically have larger growth opportunities than large caps. As the name indicates, the Russell 2000 holds around 2,000 stocks, so it includes a diverse mix of companies. Its top 10 holdings currently include Sprouts Farmers Market, Rocket Lab USA, and Insmed, showing a wide range of industries. As of now, 18% of the fund is in financial stocks, 17% is in the healthcare sector, and 16% is in industrials. At the same time, the current economy is volatile, and the Russell 2000 would likely be more sensitive to a pullback than the S&P 500 even with its lower valuation. During the sell-off that followed the April 2 "Liberation Day" tariff announcement, the Russell 2000 fell further than the S&P 500, and it has also been slower to recover, as the chart below shows. Over the long term, the valuation discount between the Russell 2000 and the S&P 500 should narrow, which will favor small-cap stocks, but there are other concerns about the ETF in the near term. The Russell 2000 still has little exposure to the AI boom, which has been led by stocks like Nvidia, Microsoft, and other big tech companies. If AI spending continues to grow, the recent pattern of outperformance for the S&P 500 is likely to continue. And in spite of the recent bull market, there have been surprisingly few initial public offerings (IPOs) that could help fuel growth of the small-cap index. Lastly, even with its lower valuation, the Russell 2000 could get hit hard by a recession since small caps tend to be more reliant on debt and can more easily slide into bankruptcy. The index outperformed in the weeks after the election as investors bet that the Trump administration would bring in a new era of deregulation and lower taxes. Thus far, that has not happened. In fact, the trade war has sparked renewed concerns from businesses large and small, and we could soon begin to see the impact in higher prices and reduced spending. Whether a Russell 2000 index fund is a buy for you may depend on your current portfolio. If you're heavily invested in the Magnificent Seven and the S&P 500, diversifying into small-cap stock makes sense. On the other hand, you may have to be patient if you're hoping small caps will outperform large caps. At the moment, the Vanguard Russell 2000 ETF still faces a number of risks, including an uncertain economy, a lack of exposure to AI, and a weak IPO market. Before you buy stock in Vanguard Russell 2000 ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Vanguard Russell 2000 ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $640,662!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $814,127!* Now, it's worth noting Stock Advisor's total average return is 963% — a market-crushing outperformance compared to 168% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 Jeremy Bowman has positions in Nvidia. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends Rocket Lab USA and Sprouts Farmers Market and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. Is the Vanguard Russell 2000 Index Fund ETF a Buy Now? was originally published by The Motley Fool
Yahoo
16-03-2025
- Business
- Yahoo
Market Correction: This Dirt Cheap ETF Is Down by Almost 20%
The benchmark S&P 500 index recently reached correction territory, indicated by a 10% drop from its highs. But certain other parts of the stock market have been hit even harder. One big area of underperformance in the recent market sell-off is small-cap stocks. The Russell 2000 small-cap index is down by more than 18% from its late-2024 peak, and to be fair, there are some good reasons. For example, there are increasing fears of a recession, and this often impacts smaller companies to a greater extent. However, small-cap stocks looked like an excellent opportunity for long-term investors at the beginning of the year, and they look even more attractive right now. That's why the Vanguard Russell 2000 ETF (NASDAQ: VTWO) is at the top of my buy list right now. As the name suggests, the Vanguard Russell 2000 ETF is an index fund that tracks the Russell 2000, which is widely considered to be the best indicator of how small-cap stocks are doing. The median market cap of a Russell 2000 company is $3.3 billion, and although this is a weighted index, no stock makes up more than 0.6% of the fund, a sharp contrast to the mega-cap-heavy S&P 500. The fund's top holdings are Sprouts Farmers Market, Insmed, and Vaxcyte. If you aren't too familiar with any of those, that's kind of the point -- a broad small-cap ETF like this allows you to get exposure to a wide range of smaller companies without the need to research investments. Like other Vanguard index funds, this is a very low-cost ETF, with a 0.07% expense ratio. This means that for every $10,000 you invest, your annual investment costs are just $7. (This isn't a fee you have to pay -- it will simply be reflected in the fund's performance over time.) The Vanguard Russell 2000 ETF was cheap a year ago and has only become even cheaper. At the start of 2024, small caps were trading for their lowest price-to-book valuation relative to their large-cap counterparts since the late 1990s. However, because of the artificial intelligence (AI)-fueled surge in mega-cap tech stocks last year, the gap only got wider. Even this year, with the S&P 500 in correction territory, the Russell 2000 has performed even worse. This has resulted in a wide valuation gap between small-cap and large-cap stocks. Just take a look at some of the key metrics: Metric S&P 500 Median Russell 2000 Median P/E ratio 27.5 17.8 P/B ratio 5.0 2.0 Earnings growth rate 18.9% 14.3% Data source: Vanguard. As of 1/31/2025. This is as of Vanguard's latest data at the end of January. The gaps have widened even further since then in the recent correction. Also notice that while the typical S&P 500 stock is growing earnings faster, it's not a big enough difference to justify such a wide valuation gap. To be fair, I don't think the gap will completely close. The S&P 500 has a disproportionate amount of high-growth (read: high-valuation) tech stocks and deserves somewhat of a premium. But this is the widest gap between the two indexes in a long time, and as I'll discuss in the next section, small caps could catch up. For one thing, while small-cap stocks have been disproportionately hit by recession fears, tariff uncertainty, and disappointing economic data, the exact opposite could be the case once these things turn around. It's also worth noting that expectations for Federal Reserve interest rate cuts for this year have increased significantly over the past few weeks, with the median expectation now calling for three or four quarter-point rate cuts, up from an expectation of just one at the start of the year. Small caps could be a big winner as rates fall. As a group, small caps are more reliant on borrowed money, and lower interest rates could certainly help. Plus, as rates fall, money should start coming out of things like Treasury securities and CDs and flowing into the market, which could be a big help for "riskier" stocks like small caps. Finally, there's also the prospect of things like tax cuts and regulatory reform that are part of the Trump administration's plans. Once the dust settles on the tariff uncertainty, these could be a big boost for smaller companies. To be perfectly clear, I have no idea if the market turbulence and correction are close to an end. If the economic data gets worse or the tariff uncertainty intensifies, just to name a few examples, things could get worse before they get better. But from a long-term perspective, the Russell 2000 ETF looks like a great opportunity right now, and I'm confident long-term investors who take advantage now will be glad they did. Before you buy stock in Vanguard Russell 2000 ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Vanguard Russell 2000 ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $708,400!* Now, it's worth noting Stock Advisor's total average return is 803% — a market-crushing outperformance compared to 160% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of March 14, 2025 Matt Frankel has positions in Vanguard Russell 2000 ETF. The Motley Fool recommends Sprouts Farmers Market. The Motley Fool has a disclosure policy. Market Correction: This Dirt Cheap ETF Is Down by Almost 20% was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
15-03-2025
- Business
- Yahoo
One Vanguard Index Fund to Buy That May Beat the S&P 500 by 100% in the Next Few Years, According to a Wall Street Analyst
Last November, Fundstrat analyst Tom Lee told CNBC that small-cap stocks are headed for a prolonged period of outperformance compared to the large-cap S&P 500 (SNPINDEX: ^GSPC). "I think small caps could, in the next couple of years, outperform by more than 100%," Lee said. The opposite has actually happened since he made that prediction. The Russell 2000, a benchmark for small-cap stocks, has tumbled 16%, while the S&P 500 has declined only 8%. However, the investment thesis Lee outlined late last year remains compelling. Here's what investors should know. The small-cap Russell 2000 achieved a total return of 7% in the last three years, dramatically underperforming the 40% return in the large-cap S&P 500. But Tom Lee thinks that trend could reverse in the years ahead as small-cap stocks benefit from lower interest rates and more attractive valuations. The Federal Reserve began lowering its benchmark interest rate in September. That should asymmetrically benefit small-cap companies because they have more floating-rate debt. Indeed, the Russell 2000 returned an average of 45% during the 12-month period following the last five rate-cut cycles, while the S&P 500 returned an average 33%, according to Goldman Sachs. The Russell 2000 trades at 16 times earnings, and earnings are forecast to grow at 11.5% annually in the next few years, according to Morningstar. Those figures give a price/earnings-to-growth ratio (PEG) of 1.4. Meanwhile, the S&P 500 trades at 22 times earnings, and earnings are forecast to grow at 9.4% annually in the next few years. Those numbers give a less attractive PEG of 2.3. Lastly, Russell 2000 companies derive one-fifth of sales from outside the U.S., while S&P 500 companies derive one-half of sales from outside the U.S. Because small-cap companies are less dependent on international revenue, they are less sensitive to retaliatory tariffs that may be levied on U.S. exports. It also means they are less sensitive to a stronger U.S. dollar, which may be a consequence of the U.S. imposing tariffs on imported goods. The Russell 2000 tracks about 2,000 small-cap companies that cover about 5% of U.S. stocks by market value. The index includes companies from all 11 market sectors, but it leans most heavily toward the industrial (19%), financial (19%), and healthcare (17%) sectors. Comparatively, the S&P 500 is weighted heavily toward the information technology (31%), financial (14%), and consumer discretionary (11%) sectors. The Vanguard Russell 2000 ETF (NASDAQ: VTWO) provides investors with exposure to the Russell 2000. The five largest holdings in the index fund are listed by weight below: Sprouts Farmers Market: 0.6% Insmed: 0.5% Vaxcyte: 0.4% SouthState: 0.4% FTAI Aviation: 0.4% The Vanguard Russell 2000 ETF has an expense ratio of 0.07%, which means shareholders will pay $0.70 annually on every $1,000 invested in the fund. The expense ratio on similar funds is 0.98%, according to Vanguard. Here's the bottom line: Recent interest rate cuts, relatively cheap valuations, and the trade war initiated by the Trump administration could lead to small-cap outperformance in the years ahead. The Vanguard Russell 2000 ETF is a sensible way for investors to position their portfolios for that possible outcome. However, investors should bear in mind that large-cap stocks have crushed small-cap stocks in recent history. So, I would personally keep my position in the Vanguard Russell 2000 ETF relatively small. And I certainly would not abandon any high-conviction large-cap stocks, nor would I abandon my S&P 500 index fund. Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Nvidia: if you invested $1,000 when we doubled down in 2009, you'd have $299,728!* Apple: if you invested $1,000 when we doubled down in 2008, you'd have $39,754!* Netflix: if you invested $1,000 when we doubled down in 2004, you'd have $480,061!* Right now, we're issuing 'Double Down' alerts for three incredible companies, and there may not be another chance like this anytime soon.*Stock Advisor returns as of March 14, 2025 Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Sprouts Farmers Market. The Motley Fool has a disclosure policy. One Vanguard Index Fund to Buy That May Beat the S&P 500 by 100% in the Next Few Years, According to a Wall Street Analyst was originally published by The Motley Fool Sign in to access your portfolio
