Purchasing Vanguard Russell 2000 ETF (VTWO) - One Strong Point to Consider
In the world of investments, a significant shift has been underway in recent times. The valuation gap between small caps and large caps has grown to a massive scale, with the former offering potential opportunities for investors.
Since the start of 2025, this gap has widened even further. As of the current writing, the average stock in the Russell 2000, a prominent index representing small-cap companies, trades for 1.8 times its book value. This is in stark contrast to the average S&P 500 component, which boasts a price-to-book multiple of 5.0, indicating a higher valuation for large caps.
Notwithstanding the faster earnings growth of large caps, led by megacap tech companies, the valuation gap is still significant. This disparity could create an inflection point that leads to small-cap outperformance.
Interestingly, a completed article on participation in shares of small companies in portfolios, written in 2025, is available but does not provide the name of its author. Regardless, the piece suggests that some investors have been increasingly interested in small-cap stocks.
One such investor is the author of this article, who has been accumulating shares of the Vanguard Russell 2000 ETF in their portfolio. This exchange-traded fund (ETF) aims to track the performance of the Russell 2000 Index, providing investors with a simple way to gain exposure to the small-cap market.
As we move forward in this falling rate environment, it remains to be seen how this trend will continue. However, the potential for small-cap outperformance cannot be ignored, making them an intriguing option for those seeking diversification in their portfolios.
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