Manager due Diligence (Vanguard Small-Cap Value ETF)

Overview
Established in 2004, Vanguard Small-Cap Value ETF seeks to track the investment performance
of the CRSP US Small Cap Value Index, an unmanaged benchmark representing value stocks of small
U.S. companies. Vanguard Small-Cap Value ETF is an exchange-traded share class of Vanguard Small-
Cap Value Index Fund. The fund attempts to replicate the target index by investing all, or substantially all,
of its assets in the stocks that make up the index, holding each stock in approximately the same proportion
as its weighting in the index.
The experience and stability of Vanguards Equity Index Group have permitted continuous
refinement of techniques for reducing tracking error. The group uses proprietary software to implement
trading decisions that accommodate cash flow and maintain close correlation with index characteristics.
Vanguards refined indexing process, combined with low management fees and efficient trading, has
provided tight tracking net of expenses.
 Equity characteristics as Small-Cap CRSP US Small Cap
of 03/31/2017 Value ETF Value Index
Number of stocks 828 823
Median market cap $3.6 billion $3.6 billion
Price/earnings ratio 25.5x 25.9x
Price/book ratio 2.1x 2.1x
Return on equity 11.00% 11.00%
Earnings growth rate 6.60% 6.60%
Foreign holdings 0.40% -
Turnover rate (as of fiscal year
end December) 18.20% -
Short-term reserves - -
Fund total net assets $26.7 billion -
Share class total net assets $11.1 billion -

Equity sector diversification as Small-Cap CRSP US Small Cap

of 03/31/2017 Value ETF Value Index
Basic Materials 6.00% 6.00%
Consumer Goods 6.80% 6.80%
Consumer Services 10.50% 10.50%
Financials 30.30% 30.40%
Health Care 5.70% 5.70%
Industrials 20.70% 20.70%
Oil & Gas 5.10% 5.10%
Other 0.00% -
Technology 7.90% 7.80%
Telecommunications 0.50% 0.50%
Utilities 6.50% 6.50%

Historical volatility measures as

of 03/31/2017 R-Squared* Beta*
Spliced Small Cap Value Index 1 1
Dow Jones U.S. Total Stock Market
Index 0.81 1.15

Management Team
As chief investment officer and managing director, Mortimer J. Buckley oversees Vanguards Equity
Index, Quantitative Equity, and Fixed Income Groups.
Joseph Brennan, CFA, Principal and global head of Vanguard's Equity Index Group, is responsible for all
equity index funds. The Equity Index Group manages indexed equity portfolios covering U.S. and
international markets. It has developed sophisticated portfolio construction methodologies and efficient
trading strategies that seek to deliver returns that are highly correlated with target portfolio benchmarks.
The group has advised Vanguard Small-Cap Value ETF since 2004.
Vanguard Equity Index Group

Gerard C. O'Reilly, Principal

Portfolio manager.
Advised the fund since 2016.
Worked in investment management since 1992.
B.S., Villanova University.

William Coleman, CFA

Portfolio manager.
Advised the fund since 2016.
Worked in investment management since 2006.
B.S., King's College.
M.S., Saint Joseph's University.

Strategy and policy

Investment strategy
Vanguard Small-Cap Value ETF is an exchange-traded share class of Vanguard Small-Cap Value Index
Fund, which employs an indexing investment approach designed to track the performance of the CRSP
US Small Cap Value Index, a broadly diversified index of value stocks of smaller U.S. companies. The
fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks
that make up the index, holding each stock in approximately the same proportion as its weighting in the
index.

Investment policy
The fund reserves the right to substitute a different index for the index it currently tracks if the
current index is discontinued, if the funds agreement with the sponsor of its target index is
terminated, or for any other reason determined in good faith by the funds board of trustees. In
any such instance, the substitute index would measure the same market segment as the current
index.
The fund may invest in foreign securities to the extent necessary to carry out its investment
strategy of holding all, or substantially all, of the stocks that make up the index it tracks. It is not
expected that the fund will invest more than 5% of its assets in foreign securities.
 To track its target index as closely as possible, the fund attempts to remain fully invested in
stocks. To help stay fully invested and to reduce transaction costs, the fund may invest, to a
limited extent, in derivatives. Generally speaking, a derivative is a financial contract whose value
is based on the value of a financial asset (such as a stock, bond, or currency), a physical asset
(such as gold), or a market index (such as the S&P 500 Index). The fund will not use derivatives
for speculation or for the purpose of leveraging (magnifying) investment returns.
The funds daily cash balance may be invested in one or more Vanguard CMT funds, which are
very low-cost money market funds. When investing in a Vanguard CMT fund, the fund bears its
proportionate share of the at-cost expenses of the CMT fund in which it invests.
The fund may temporarily depart from its normal investment policies and strategies when doing so is
believed to be in the funds best interest, so long as the alternative is consistent with the funds investment
objective. For instance, the fund may invest beyond the normal limits in derivatives or ETFs that are
consistent with the funds objective when those instruments are more favorably priced or provide needed
liquidity, as might be the case when the fund is transitioning assets from one advisor to another or
receives large cash flows that it cannot prudently invest immediately

Mutual Fund Expenses

Expenses Expense Ratio
Small-Cap Value ETF 0.07%
Average expense ratio of similar funds 1.30%

Mutual Fund Performance

Average annual returnsupdated 1 3 5 10 Since Inception
monthly as of 03/31/2017 Year Year Year Year 01/26/2004
22.95 14.16
Small-Cap Value ETF Market Price % 9.02% % 7.76% 9.24%
22.97 14.17
Small-Cap Value ETF NAV % 9.04% % 7.76% 9.24%
22.98 14.22
Spliced Small Cap Value Index* % 9.07% % 7.75% 9.25%