VBK: Why Growth Investors Should Avoid The Small-Caps

Summary

• The Vanguard Small-Cap Growth ETF is down 23% YTD, and unfortunately, I expect more downside. A shocking 37% of VBK's constituents didn't turn a profit last quarter.
• Its 29.18 forward price-earnings ratio is also understated. After applying Morningstar's 60 P/E cap to these non-profitable companies, VBK's forward P/E skyrockets to 36.96.
• Application Software and Biotechnology are two industries in danger. They combine to total 17% of VBK, and I'll give my reasons why I think you should avoid them.
• Given these poor metrics, it's much more prudent for growth investors to just buy the Nasdaq-100 Index. I'll provide VBK's fundamentals alongside QQQ to make this clear.
• It's not worth waiting around for sentiment to improve. VBK is one of my easier "sell" recommendations.

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Investment Thesis

The Vanguard Small Cap Growth ETF (NYSEARCA:VBK) is a well-diversified group of nearly 700 companies with market capitalizations averaging just under $4 billion. Vanguard charges a modest 0.07% annually to own this popular $13 billion ETF. After a

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.