Choosing Between VBK and SLYG for Small-Cap Growth Exposure: Cost Efficiency vs. Performance and Risk-Adjusted Returns

Investors seeking exposure to small-cap growth stocks often face a critical trade-off: minimizing costs versus maximizing returns. The Vanguard Small-Cap Growth ETF (VBK) and the iShares Core S&P Small-Cap Value/Growth ETF (SLYG) are two prominent options in this space, each offering distinct advantages. This analysis evaluates their merits through the lenses of expense ratios, historical performance, and risk-adjusted returns, drawing on recent data to guide decision-making.

Cost Efficiency: A Narrow Margin

Expense ratios remain a cornerstone of cost efficiency in passive investing. According to Morningstar, the Vanguard Small-Cap Growth Index Fund (VBK) carries an expense ratio of 0.07%, while The Fool notes that SLYG's expense ratio is marginally lower at 0.06%. At first glance, SLYG appears more cost-effective, saving investors 0.01% annually. However, this difference is modest, particularly for long-term holders, where compounding effects may render the savings negligible compared to performance disparities.

Performance: VBK Outpaces SLYG

Historical performance data from Portfolioslab reveals a clear edge for VBK over SLYG. From 2020 to 2025, VBK delivered an annualized return of 11.81%, outperforming SLYG's 10.94%. Even in the most recent year-to-date period as of 2026, VBK's 5.97% return significantly exceeded SLYG's 4.58%. These figures suggest that VBK's higher expense ratio is more than offset by its superior growth trajectory, particularly in volatile markets where small-cap stocks often underperform.

Risk-Adjusted Returns: Quality of Performance Matters

Beyond raw returns, risk-adjusted metrics like the Sharpe ratio provide insight into the efficiency of an investment. Portfolioslab's analysis highlights that VBK's Sharpe ratio of 0.56 outperforms SLYG's 0.40. This indicates that VBK generates better returns per unit of risk, a critical consideration for investors seeking to balance growth with portfolio stability. A higher Sharpe ratio implies that VBK's outperformance is not merely due to taking on excessive risk but reflects superior indexing or stock-selection methodology.

Strategic Implications for Investors

The choice between VBK and SLYG hinges on investor priorities. For those prioritizing cost minimization above all else, SLYG's 0.06% expense ratio offers a slight edge. However, VBK's combination of higher returns and a stronger risk-adjusted profile makes it a more compelling option for investors who value performance quality. The 0.01% cost differential is unlikely to meaningfully impact long-term outcomes compared to the 0.87% annualized performance gap between the two funds.

Moreover, VBK's track record suggests it may better navigate market cycles, a critical factor in small-cap growth investing, where volatility is inherent. While SLYG's lower cost is attractive, its underperformance in both absolute and risk-adjusted terms raises questions about whether the savings are worth the potential drag on returns.

Conclusion

In the VBK versus SLYG debate, cost efficiency alone cannot dictate the decision. While SLYG offers a marginally cheaper option, VBK's superior historical performance and risk-adjusted returns position it as the more robust choice for investors prioritizing growth and stability. As small-cap markets remain a high-conviction segment for many, the incremental cost of VBK appears justified by its demonstrated ability to deliver value over time.