SPSM vs IJR: Which Small-Cap ETF Offers Better Value?

iShares Core S&P Small-Cap ETF (NYSEMKT:IJR) and State Street SPDR Portfolio S&P 600 Small Cap ETF (NYSEMKT:SPSM) offer nearly identical exposure to U.S. small-cap stocks, differing primarily in expense ratio, liquidity, and assets under management.

Small-capitalization stocks often provide growth potential that large-cap peers lack, though they typically come with higher volatility. Investors frequently use these vehicles to capture the "size premium," or the historical tendency for smaller companies to outperform larger ones over very long time horizons. Both funds track the S&P SmallCap 600 Index, but their histories and fee structures differ.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

State Street SPDR Portfolio S&P 600 Small Cap ETF is the more affordable option with a 0.03% expense ratio compared to 0.06% for the iShares fund. Additionally, the State Street fund currently offers a slightly higher dividend payout, providing a 1.4% yield versus 1.1% for its competitor.

Performance & risk comparison

What's inside

iShares Core S&P Small-Cap ETF provides exposure to 671 holdings, and its largest positions include Corcept Therapeutics (NASDAQ:CORT) at 0.60%, Viasat (NASDAQ:VSAT) at 0.60%, and Glaukos (NYSE:GKOS) at 0.59%. The portfolio's sector allocation is balanced across financial services at 18%, industrials at 16%, and technology at 15%. This fund was launched in 2000. iShares Core S&P Small-Cap ETF has paid $1.64 per share over the trailing 12 months, which on its recent ~$146.37 share price works out to a 1.1% yield.

State Street SPDR Portfolio S&P 600 Small Cap ETF holds 606 stocks and is also concentrated in financial services at 18%, industrials at 16%, and technology at 14%. Top holdings include Corcept Therapeutics at 0.64%, Glaukos at 0.60%, and Viasat at 0.56%. This fund was launched in 2013. State Street SPDR Portfolio S&P 600 Small Cap ETF has paid $0.79 per share over the trailing 12 months, which on its recent ~$56.93 share price works out to a 1.4% yield.

For more guidance on ETF investing, check out the full guide at this link.

Which looks like the better buy

Small-cap stocks have been a pretty good place to invest over the past year after getting pummeled by large caps over the past several years.

Both of these small-cap ETFs have posted excellent returns over the past year -- almost identical returns, in fact, because they track the same index. They have roughly similar year-to-date returns of 21%, and they have each returned about 24% over the past 12 months. In both cases, they are beating large-cap ETFs.

If you were looking to own one of these, it would have to be the State Street ETF, SPSM. The main reason is its lower expense ratio of 0.03%, compared with 0.06% for the iShares fund. Because of its lower expense ratio, it has a slightly higher distribution yield of 1.4% compared to 1.1% for the iShares ETF, and a slightly higher average annualized total return over time.

It really is a case of splitting hairs with these two ETFs, but the lower expense ratio gives the State Street fund a small edge.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Corcept Therapeutics and iShares Core S&P Small-Cap ETF. The Motley Fool has a disclosure policy.