VTWV

During the current coronavirus-induced recession, high-quality small caps have severely lagged low quality.The outperformers in 2020 have been unprofitable tech and biotech stocks.As an increasing percentage of negative earnings growth companies occupy greater weight in the broad Russell 2000 Index benchmark, we advocate for investors to consider adding a quality filter to small-cap allocations.For investors looking for multiple expansion during a cyclical recovery, small-cap quality looks far better positioned than both large caps and the broad-based Russell 2000 Index.

At the end of August 2020, small-cap value stocks in the Russell 2000 Value Index were trading near their lowest levels in 10 years, compared to the large-cap value stocks in the Russell 1000 Value Index, as measured by price-to-earnings (P/E) ratios.If you exclude negative-earning companies, earnings per share for companies in the Russell 2000 Value Index grew at a compound annual growth rate of approximately 4.9% for the 10-year period ended August 30, 2020.According to our analysis of companies in the Russell 1000, 2000 and 3000 indexes, value stocks only outperformed growth stocks 40% of the trading days in the 12 months ended August 31, 2020.Although investors have favored large-cap stocks over the past decade, small-cap value stocks have outperformed large-cap stocks over the 20 years ended August 31, 2020.

Vanguard Russell 2000 Value ETF (VTWV) - $0.4060.30-Day SEC Yield of 1.92% as of Aug. 31.Payable Sep 16; for shareholders of record Sep 14; ex-div Sep 11.