What 91 Financial Pros See in This $40B Growth Fund

Something interesting is happening in the small-cap corner of the market. 

While headlines focus on the Magnificent Seven, financial professionals have quietly shifted their attention elsewhere. 

Our TrackStar data reveals an overwhelming interest in the Vanguard Small-Cap Growth ETF (VBK), with search volume outpacing its competitors by a wide margin.

The timing is particularly intriguing. 

As VBK posts a 38.9% gain over the past year, professional investors aren’t just watching – they’re actively researching this fund at nearly double the rate of its closest competitor. 

The surge in interest suggests they might see something others don’t.

Key Facts About VBK

• Net assets: $40.7 billion
• 12-month trailing yield: 0.58%
• Inception: January 26, 2004
• Expense ratio: 0.07%
• Number of holdings: 606

Unlike many growth funds that chase headline-grabbing stocks, VBK takes a methodical approach to finding tomorrow’s winners. 

The fund scours the small-cap universe using a combination of growth metrics that would make any fundamental analyst smile – from earnings growth trajectories to return on assets.

Look under the hood, and you’ll find companies like Axon Enterprise, transforming law enforcement technology, and AppLovin, reshaping mobile advertising. 

Even Deckers Outdoor, the company behind UGG boots, makes an appearance. Each represents less than 1.6% of the portfolio – a deliberate choice that protects investors from single-stock disasters.

Source: Vanguard

At its core, VBK’s portfolio reflects America’s innovation economy. 

Software firms and healthcare innovators comprise much of the fund’s DNA, balanced by industrial pioneers and consumer brands poised for expansion. 

This mix creates a sweet spot between established small caps and emerging growth stories. 

The fund’s stringent selection criteria ensure companies have more than just good stories – they need solid financials to earn their place. 

With a median market cap of $9.4 billion, these aren’t micro-caps taking moonshots, but rather businesses that have proven their models and are scaling up. 

Foreign exposure stays minimal at 0.6%, keeping the focus squarely on domestic growth opportunities. 

The high turnover rate of 19% indicates the fund isn’t afraid to rotate holdings when companies either outgrow their small-cap status or fail to maintain their growth trajectory.

Source: Vanguard

Performance

Numbers tell stories, and VBK’s story is compelling. 

While many small-cap funds struggled in recent years, VBK delivered a steady 9.6% annual return over the past five years. Even more impressive? Its 25.3% gain this year suggests the strategy works in both bull and bear markets.

Yes, you’ll pay a premium for these growth companies – the portfolio trades at 31.2x earnings. 

But with an 18.7% earnings growth rate, these aren’t your typical speculative small caps. These are real businesses generating real growth.

Source: Vanguard

Competition

Several other small-cap growth ETFs that topped our TrackStar data are worth comparing:

• iShares Russell 2000 Growth ETF (IWO): Tacks the Russell 2000 Growth Index, offering exposure to smaller, more speculative companies than VBK. With 1,102 holdings versus VBK’s 606, it casts a wider net but carries higher volatility and costs. Its 0.24% expense ratio triples VBK’s fees.
• Vanguard Russell 2000 Growth ETF (VTWG): Mirrors IWO’s index but uses Vanguard’s cost-efficient structure. Despite the lower 0.15% expense ratio, its small asset base of $1.07 billion creates potential liquidity challenges that VBK doesn’t face. Think of it as VBK’s smaller, less-traded cousin.
• Vanguard S&P Small-Cap 600 Growth ETF (VIOG): Focuses exclusively on S&P 600 companies, targeting higher-quality small caps than VBK. With just 355 holdings, it’s more concentrated but less liquid. The 0.15% expense ratio sits between VBK and IWO.
• SPDR S&P 600 Small Cap Growth ETF (SLYG): Takes VIOG’s approach but packages it differently. Similar holdings but structured as a SPDR product. The higher 1.04% yield attracts income investors, but the smaller asset base of $3.87 billion limits its appeal versus VBK

As we often see, ETFs with higher diversification tend to underperform those more narrowly tailored.

However, what you give up in performance you gain in lower volatility.

Our Opinion 9/10 

VBK isn’t perfect – no investment is. The 0.58% yield won’t excite income investors, and small-cap stocks can test your patience during market downturns. 

But for growth investors, VBK offers something rare: professional-grade small-cap exposure at index fund prices.

The 0.07% expense ratio means more money stays in your pocket. The diversified approach across 606 holdings helps you sleep at night. And the track record? It speaks for itself.

Financial professionals have noticed. Maybe it’s time you did too.

For investors ready to look beyond mega-cap tech stocks, VBK offers a compelling way to access the growth potential of smaller companies. Just remember: this is a growth fund. 

It works best as part of a diversified portfolio where its potential for higher returns can shine without keeping you up at night.

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