Which iShares Value ETF Is Better, the Small Cap-Focused IWN or IJJ Targeting Mid-Cap Stocks?

While the iShares S&P Mid-Cap 400 Value ETF (NYSEMKT:IJJ) focuses on mid-sized companies, the iShares Russell 2000 Value ETF (NYSEMKT:IWN) offers exposure to small-cap value stocks with a broader portfolio and slightly higher costs.

Both ETFs provide low-cost access to value-oriented domestic stocks outside the large-cap universe. Investors often choose between IJJ and IWN to fine-tune their exposure to different market capitalizations while maintaining a focus on companies trading at lower valuations relative to fundamentals.

Snapshot (cost & size)

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

The iShares S&P Mid-Cap 400 Value ETF is more affordable with an expense ratio of 0.18%, while the iShares Russell 2000 Value ETF charges 0.24%. The iShares S&P Mid-Cap 400 Value ETF also offers a slightly higher dividend yield.

Performance & risk comparison

What's inside

The iShares Russell 2000 Value ETF aims to mirror an index of small-cap companies with value characteristics. Its sector exposure includes financial services at 24%, industrials at 12%, and technology at 12%. The fund holds 1,415 securities, and its largest positions include Viasat (NASDAQ:VSAT) at 0.68%, Cytokinetics (NASDAQ:CYTK) at 0.65%, and Umb Financial Corp (NASDAQ:UMBF) at 0.64%. It was launched in 2000. It has paid $3.19 per share over the trailing 12 months, which on its recent ~$221.71 share price works out to a 1.40% yield.

The iShares S&P Mid-Cap 400 Value ETF targets the mid-cap segment with a 299-holding portfolio. Its top holdings include U.S. Foods Holding Corp (NYSE:USFD) at 1.29%, TD Synnex Corp (NYSE:SNX) at 1.15%, and Reliance Steel & Aluminum (NYSE:RS) at 1.10%. Sector tilts favor financial services at 21%, industrials at 19%, and consumer cyclical at 14%. It was launched in 2000. It has paid $2.34 per share over the trailing 12 months, which on its recent ~$146.78 share price works out to a 1.60% yield.

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

What this means for investors

Investing in value stocks is a great way to capture upside potential. Choosing between the iShares Russell 2000 Value ETF (IWN) and its counterpart, the iShares S&P Mid-Cap 400 Value ETF (IJJ) comes down to whether you want to invest in small-cap or mid-cap companies. Each hold different pros and cons.

IWN’s small-cap focus offers the potential for outsized gains, since smaller companies have greater opportunities for growth. This is demonstrated in IWN’s far superior one-year return. The fund also sports a much larger AUM, which delivers better liquidity. These benefits are offset by its elevated expense ratio, and the higher volatility inherent in small-cap stocks, as illustrated by its deeper max drawdown.

IJJ offers a balance between IWN and investing in large-cap companies. Many of the businesses in the fund are profitable. lowering volatility and risk while also providing solid upside opportunity. The ETF uses metrics such as book value, earnings, and sales to assess inclusion, and these filters mean it holds far fewer equities compared to IWN.

IJJ is better for investors who want growth without excessive risk or volatility. IWN is the choice for those who want to maximize return potential, and are active traders who can benefit from the fund’s higher AUM.

Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cytokinetics. The Motley Fool has a disclosure policy.