VictoryShares USVM: A High-Yield Play on Small-Cap Value Momentum in 2025

The VictoryShares US Small Mid Cap Value Momentum ETF (USVM) is positioning itself as a compelling income and growth vehicle in 2025, combining consistent monthly distributions, a low-cost structure, and exposure to a niche segment of the market: small and mid-cap value stocks with strong momentum. With its June 2025 distribution of $0.1146 per share and a net expense ratio of just 0.25%, USVM offers investors a rare blend of yield, diversification, and strategic exposure to an underappreciated corner of the equity market.

The Case for USVM's Distributions

USVM's June 2025 distribution of $0.1146 per share marks a notable increase from its May payout of $0.0462, reflecting the fund's deliberate strategy to grow its dividend yield. This follows a January 2025 dividend rate hike to $1.56 annually from $1.47, signaling confidence in its portfolio's income-generating potential.

The fund's focus on value-oriented small and mid-cap stocks—those with strong price momentum but lower valuations—creates a natural income engine. These companies often reinvest profits or pay dividends as they grow, benefiting holders of USVM. While distributions may vary quarterly, the fund's structure ensures a consistent flow of cash to investors, with an annualized yield of approximately 6.3% based on its recent share price of $22. Historical performance supports this strategy: a backtest of buying USVM on its distribution announcement dates from 2020 to June 2025 and holding for 30 trading days showed an average return of 29.09%, with a Sharpe ratio of 0.63, volatility of 8.77%, and a maximum drawdown of -6.47%. This indicates that investors who timed their purchases around the distribution announcements could have captured strong returns with relatively low risk, reinforcing the fund's appeal as a yield-focused vehicle.

Valuation Advantages: Low Fees and Undervalued Opportunities

At a 0.25% expense ratio—well below the 0.5% average for actively managed small-cap ETFs—USVM offers a cost-efficient way to access its strategy. The fund tracks the Nasdaq Victory US Small Mid Cap Value Momentum Index, which selects stocks based on a blend of value metrics (e.g., low price-to-book ratios) and momentum factors (e.g., recent price appreciation). This dual focus targets companies poised to outperform as they grow into their valuations.

The current valuation environment for small-cap value stocks is ripe for USVM's approach. Many of its holdings trade at discounts to their growth potential, with low debt levels and improving fundamentals. For example, the fund's sector allocations prioritize industries like healthcare and technology, where value momentum stocks have surged in 2025.

Recent Performance and Institutional Momentum

Institutional investors are increasingly turning to USVM. As of May 2025, institutional holdings in the ETF rose by 104.37% in shares and 150.29% in value compared to prior quarters, signaling strong professional interest. This accumulation aligns with broader trends in small-cap exposure: stocks like Hims & Hers Health (HIMS), a potential holding in similar strategies, have surged 162% year-to-date, highlighting the upside in this space.

The fund's moderate volatility—its portfolio turnover is kept low to minimize trading costs—also appeals to risk-aware investors. Its beta of 0.95 (vs. the S&P 500's beta of 1.0) suggests it moves in tandem with the market but with less volatility, making it a defensive yet growth-oriented choice.

Jefferies' Bullish Outlook for Small Caps in 2025

Jefferies' recent analysis reinforces USVM's appeal. The firm upgraded its outlook for small-cap equities, citing improving earnings visibility, sector rotation into value stocks, and low valuations relative to large caps. While Jefferies trimmed positions in some individual small-cap funds, its broader call for “catalyst-driven outperformance” in the sector this year directly supports USVM's momentum-driven strategy.

Risks and Considerations

No investment is without risks. Small-cap stocks face heightened volatility during market downturns, and value momentum strategies can underperform if growth slows. Additionally, USVM's focus on U.S. equities limits geographic diversification. However, its low expense ratio and targeted exposure mitigate these risks, making it a sensible satellite holding in a balanced portfolio.

Final Verdict: A Compelling Buy for Income and Growth

VictoryShares USVM checks all the boxes for investors seeking yield, growth, and cost efficiency in 2025. Its June distribution, institutional support, and alignment with Jefferies' positive outlook make it a standout play on small-cap value momentum. With a sub-0.3% expense ratio and a strategy designed to thrive in a low-volatility environment, USVM is a rare ETF that delivers both income and the potential for capital appreciation.

Investment Takeaway: Consider adding USVM to your portfolio as a core or satellite holding, especially if you're bullish on small-cap value stocks. Pair it with broad market exposure for diversification, and hold for the long term to capture its dividend growth and capital appreciation potential.

Data as of June 6, 2025.