IWN vs. IJJ: Which iShares Value-Focused ETF Reigns Supreme?

The iShares Russell 2000 Value ETF (NYSEMKT:IWN) encompasses a significantly broader small-cap universe and has outperformed over the past year, whereas the iShares S&P Mid-Cap 400 Value ETF (NYSEMKT:IJJ) offers lower costs, a higher yield, and a mid-cap focus.

Both the iShares Russell 2000 Value ETF (IWN) and the iShares S&P Mid-Cap 400 Value ETF (IJJ) are designed for investors seeking exposure to U.S. value stocks, but they target different market segments. IWN tracks small-cap value companies, while IJJ focuses on mid-cap value names. This comparison highlights cost, returns, risk, sector tilts, and portfolio construction to help you determine which option may better align with your investment goals.

Snapshot (cost & size)

The one-year return represents total return over the trailing 12 months.

IJJ is more affordable with a 0.18% annual expense ratio, while IWN charges 0.24%. However, IJJ has lagged IWN's total returns over the last year.

Performance & risk comparison

What's inside

IWN tracks over 1,400 small-cap U.S. value stocks, making it one of the broadest value ETFs available. Financial services account for 27% of assets, followed by industrials at 13% and healthcare at 10%. Top holdings, such as EchoStar at 1.00%, Hecla Mining at 0.62%, and Commercial Metals at 0.57%, each represent less than 1% of total assets. With a 25-year history, IWN offers deep liquidity and time-tested management. However, investors should note that small-cap value stocks can be more volatile and less liquid than those of larger companies.

IJJ, in contrast, holds about 295 mid-cap value stocks, with financial services (21%), industrials (17%), and consumer cyclical (11%) as its largest sectors. Top positions include Flex at 1.60%, Talen Energy at 1.13%, and U.S. Foods at 1.13%, each with a slightly higher portfolio weight than IWN’s top holdings. IJJ’s narrower focus means more concentrated bets in the mid-cap space, which may appeal to those preferring companies that are larger and generally more established than IWN’s small-cap roster.

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

What this means for investors

While IJJ has underperformed versus IWN over the last year, the ETF has easily won the battle over the last five, ten, and 25 years. Since 2000, IJJ has posted total returns of around 1,060% compared to IWN's mark of 777%. Both funds have lagged behind the returns of the S&P 500, but they offer drastically different holdings compared to the broader index.

Both ETFs serve as excellent options to diversify away from the Magnificent Seven and mega-cap tech stocks, particularly for investors who already believe they have sufficient exposure to these behemoths. Between the two, I would lean toward IJJ thanks to its stronger historical returns, lower expense ratio, lower beta, slightly higher dividend yield, and faster growth rate over the last decade.

Furthermore, I prefer that IJJ has slightly fewer financial services holdings and more industrials and consumer cyclical exposure. Ultimately, both ETFs are good alternatives to the more popular, top-heavy indexes, especially with IJJ and IWN trading at 18 and 15 times earnings, making them intriguing, discounted investment options.

Glossary

Small-cap: Companies with relatively small total market value, typically under $2 billion.
Mid-cap: Companies with a medium market value, generally between $2 billion and $10 billion.
Value stocks: Stocks considered undervalued compared to their fundamentals, often trading at lower price ratios.
Expense ratio: Annual fund operating expenses expressed as a percentage of average assets under management.
Dividend yield: Annual dividends paid by a fund or stock, shown as a percentage of its price.
Beta: A measure of a fund's volatility compared to the overall market, often the S&P 500.
AUM (Assets Under Management): The total market value of assets a fund manages on behalf of investors.
Max drawdown: The largest percentage drop from a fund's peak value to its lowest point over a specific period.
Sector tilt: When a fund allocates more assets to certain industries or sectors than the overall market.
Portfolio construction: The process of selecting and weighting assets within a fund to achieve specific investment goals.
Liquidity: How easily assets can be bought or sold in the market without affecting their price.

Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool recommends Flex. The Motley Fool has a disclosure policy.