IWN vs. SLYV: Sector Allocations Make the Difference

The iShares Russell 2000 Value ETF (NYSEMKT:IWN) charges a higher expense ratio and holds a much broader portfolio than the State Street SPDR S&P 600 Small Cap Value ETF (NYSEMKT:SLYV), but has outperformed over the past year.

Both the State Street SPDR S&P 600 Small Cap Value ETF and the iShares Russell 2000 Value ETF target U.S. small-cap value stocks, appealing to investors seeking exposure to the value factor among smaller companies. While SLYV tracks the S&P SmallCap 600 Value Index, IWN follows the Russell 2000 Value Index, resulting in differences in sector allocation, portfolio breadth, and recent performance that are worth examining.

Snapshot (cost & size)

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

SLYV is the more affordable option in terms of fees, while IWN costs 0.09 percentage points more annually. SLYV also offers a slightly higher dividend yield, which may appeal to income-focused investors.

Performance & risk comparison

What's inside

IWN tracks the Russell 2000 Value Index and currently holds 1,407 stocks, making it one of the broadest small-cap value ETFs available. Its sector mix leans most heavily toward financial services (27%), industrials (13%), and health care (11%), while top positions include Blk Csh Fnd Treasury Sl Agency (XTSLA), Echostar (NASDAQ:SATS), and Hecla Mining (NYSE:HL). With over 25 years on the market and $12.5 billion in assets under management (AUM), it offers deep liquidity and broad market exposure.

SLYV, by contrast, tracks the S&P SmallCap 600 Value Index and owns 454 companies, with a sector tilt toward financial services (23%), consumer cyclicals (16%), and industrials (15%). Its top holdings are Borgwarner (NYSE:BWA), Hecla Mining, and Lincoln National (NYSE:LNC), reflecting a somewhat more concentrated approach to small-cap value stocks.

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What this means for investors

The most obvious difference between these funds, and the factors that could have the most direct impact on investors' results, is the lower expense ratio and higher dividend yield of SLYV compared to IWN. Over the past year, IWN has had a better return (13.4% vs. 6.4%), but when viewed in the broader context, the funds perform comparably over the long term.

It's in their sector allocations that investors may find the differences that could lead to a decision to invest in one over the other. While both funds allocate the largest portion to the financials sector, they diverge thereafter. SLYV has a pretty even split between consumer discretionary, industrials, and information technology as its next three largest sectors. IWN, on the other hand, features healthcare as its third-largest sector allocation at 11%. Investors seeking more healthcare exposure may prefer IWN, whereas those seeking more tech stocks may prefer SLYV.

Going one level deeper into the individual holdings reveals another key difference that investors should be aware of. IWN's largest holding is a money market fund. It's only 1% of the fund, but it's a notable difference from SLYV, which has stocks as its 10 largest holdings.

Glossary

ETF: Exchange-Traded Fund; a fund that trades on stock exchanges, holding a basket of assets like stocks or bonds.
Expense ratio: The annual fee, expressed as a percentage, that a fund charges its shareholders for managing the fund.
Dividend yield: The annual dividends paid by an investment, shown as a percentage of its current price.
Beta: A measure of an investment's volatility compared to the overall market, typically the S&P 500.
AUM: Assets Under Management; the total market value of assets managed by a fund.
Max drawdown: The largest percentage drop from a fund’s peak value to its lowest point over a specific period.
Sector allocation: How a fund's investments are distributed among different industries or sectors.
Small-cap: Refers to companies with a relatively small total market value, typically between $300 million and $2 billion.
Value factor: An investment strategy focusing on stocks considered undervalued based on financial metrics like price-to-earnings ratios.
Liquidity: The ease with which an asset can be quickly bought or sold without affecting its price.
Index (in ETFs): A benchmark that an ETF aims to track, representing a specific segment of the market.
Portfolio breadth: The number of different holdings within a fund, indicating its level of diversification.

Jeff Santoro has no position in any of the stocks mentioned. The Motley Fool recommends BorgWarner. The Motley Fool has a disclosure policy.