5 Best Small Cap Value ETFs by 2023 Performance

We highlight the top performers and provide a small cap value outlook for 2024.

kent
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Research Lead
Reviewed by: etf.com Staff
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Edited by: Ron Day

As investors look beyond highly priced large cap growth stocks, small cap value ETFs are gaining investor attention as reasonable valuations and greater upside potential look increasingly attractive for 2024. 

Learn more about investing in small cap value stocks, including the associated benefits and risks, and see a list of the best small cap value ETFs of 2023. 

What Is a Small Cap Value ETF?  

A small cap value ETF is an exchange-traded fund that invests in small cap companies with a value investing approach. Small cap companies have market capitalizations typically ranging from approximately $300 million to $2 billion. 

Value investing is a strategy that seeks undervalued stocks with the belief that the market has not fully recognized their true intrinsic value. 

More specifically, a small cap value ETF typically includes stocks of companies that meet certain fundamental metrics such as price-to-earnings ratio, price-to-book ratio and other valuation measures. Most small cap value ETFs are passively managed, meaning they aim to replicate the performance of a specific small cap value index. 

The largest small cap value ETF, as measured by assets under management as of December 14, 2023, is the Vanguard Small-Cap Value ETF (VBR), with $26.4 billion in AUM. 

The 5 Top Performing Small Cap Value ETFs of 2023

TickerFundExpense RatioAUM2023 Return
FYTFirst Trust Small Cap Value AlphaDEX Fund0.73%$176.2M21.81%
AVUVAvantis U.S. Small Cap Value ETF0.25%$7.9B20.85%
RZVInvesco S&P SmallCap 600 Pure Value ETF0.35%$238.1M20.71%
DEEPRoundhill Acquirers Deep Value ETF0.80%$37.4M20.24%
XSVMInvesco S&P SmallCap Value with Momentum ETF0.39%$644.3M18.11%

Our list of the best small cap value ETFs of 2023 is measured by year-to-date performance through December 14. We eliminated ETFs that did not prioritize holding small cap stocks over larger market capitalizations.

First Trust Small Cap Value AlphaDEX Fund

The First Trust Small Cap Value AlphaDEX Fund (FYT) tracks an index of securities pulled from the NASDAQ US 700 Small Cap Index that are rescreened and weighted based on a tiered process. FYT's expense ratio is 0.73% and assets under management are $176.2 million.

Avantis U.S. Small Cap Value ETF

The Avantis U.S. Small Cap Value ETF (AVUV) is an actively managed fund that seeks long-term capital appreciation by picking U.S. small-cap value stocks that are highly profitable, as defined by the fund manager, across market sectors and industry groups. AVUV's expense ratio is 0.25% and assets under management are $7.9 billion.

Invesco S&P SmallCap 600 Pure Value ETF

The Invesco S&P SmallCap 600 Pure Value ETF (RZV) provides a pure value take on the S&P SmallCap 600, a market-cap-weighted index that consists of U.S. small-cap companies screened for size, liquidity and financial viability. RZV's expense ratio is 0.35% and assets under management are $238.1 million.

Roundhill Acquirers Deep Value ETF

The Roundhill Acquirers Deep Value ETF (DEEP) tracks an equal-weighted index of 100 smallest U.S. stocks, including micro-cap, that are potentially deeply undervalued based on their fundamentals. DEEP's expense ratio is 0.80% and assets under management are $37.4 million.

Invesco S&P SmallCap Value with Momentum ETF

The Invesco S&P SmallCap Value with Momentum ETF (XSVM) tracks a value score-weighted index of US small-cap stocks selected by a combination of value and momentum screens. XSVM's expense ratio is 0.39% and assets under management are $644.3 million.

Pros & Cons of Investing in Small Cap Value ETFs

Investing in small cap value ETFs offers distinct advantages, such as potential for outperformance and a value investing approach, but they also have associated disadvantages, such as higher volatility and risk. AVUV's expense ratio is and assets under management are

Here are the key pros and cons of investing in small cap value ETFs: 

Pros

  • Potential for higher returns: Small cap value stocks have the potential for significant long-term growth. By investing in a diversified portfolio of undervalued small cap companies, investors may capture higher returns compared to larger, more mature companies. 
  • Diversification: Small cap value ETFs provide investors with exposure to a broad range of small cap stocks across different industries. This diversification can reduce the risk associated with investing in individual small cap companies. 
  • Value investing approach: The value investing strategy employed by small cap value ETFs seeks to identify undervalued stocks with potential for price appreciation. This approach is grounded in fundamental analysis and the belief that the market may eventually recognize the true value of these companies. 
  • Passive management: Most small cap value ETFs are passively managed, aiming to replicate the performance of a specific small cap value index. Passive management typically results in lower expense ratios compared to actively managed funds. 
  • Lower expense ratios: ETFs, in general, have lower expense ratios compared to actively managed mutual funds. This cost-effectiveness can improve overall returns for investors. 

Cons 

  • Higher volatility and risk: Small cap value investing can be riskier and more volatile compared to investing in larger, more established companies. 
  • Market sensitivity: Small cap value stocks may be more influenced by economic cycles, interest rate changes and market sentiment. Economic downturns can impact smaller companies more significantly. 
  • Liquidity concerns and style drift: Some small cap stocks may have lower trading volumes and liquidity, making it harder to execute large trades at desired prices. For this reason, some small cap value ETFs extend their objectives to hold some midcap stocks, which may cause style drift. 
  • Market overlooked: Value stocks, including small cap value stocks, may remain undervalued for longer periods, and the market may not recognize their true value as quickly as anticipated. 
  • Higher company-specific risks: Smaller companies may face higher company-specific risks, such as management inefficiencies, limited access to capital and competitive challenges. 
  • Potential for underperformance: While small cap value stocks have the potential for higher returns, they may also underperform during certain market conditions or economic cycles. 

2024 Outlook for Small Cap Value ETFs 

The market outlook for small-cap value ETFs in 2024 is mixed, but there are several factors that could influence their performance. The Fed’s pause in its rate hike campaign could provide a boost to small-cap value stocks, which have been more sensitive to rising interest rates than large-cap stocks. Furthermore, value stocks tend to outperform growth stocks during economic downturns or periods of slow growth. If the economy weakens in 2024, small-cap value ETFs could benefit. 

While not a certainty, some economists are concerned about the possibility of a recession in 2024. This could lead to a decline in small-cap stocks, including value stocks. 

Overall, the market outlook for small-cap value ETFs in 2024 is mixed. While there are some potential tailwinds, there are also significant headwinds that could negatively impact their performance. Investors should carefully 

Investing in small cap value ETFs can be suitable for investors seeking higher growth potential and exposure to undervalued companies, especially in environments where overpriced large cap growth stocks are expected to underperform. However, it's essential to recognize the higher risks associated with small cap stocks, particularly during economic downturns.

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.