Size Matters: Comparing Small-Cap and Mid-Cap Value Funds ISCV and IJJ

The iShares Morningstar Small-Cap Value ETF (NYSEMKT:ISCV) stands out for its lower expense ratio, broader diversification, and slightly higher yield, while the iShares SP Mid-Cap 400 Value ETF (NYSEMKT:IJJ) offers greater liquidity, a larger asset base, and a gentler historical drawdown.

Both ISCV and IJJ target value stocks in the U.S, but with different approaches: ISCV focuses on small-caps and tracks a Morningstar index, while IJJ sticks to mid-cap names following the S&P 400 Value. This comparison looks at cost, returns, risk, liquidity, and portfolio construction to help investors weigh which ETF aligns better with their goals.

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.

ISCV looks more affordable, charging just 0.06% in fees compared to IJJ's 0.18%, and it also offers a slightly higher dividend yield -- a modest edge for cost-conscious, income-focused investors.

Performance & risk comparison

What's inside

ISCV tracks a Morningstar index of small-cap U.S. value stocks, delivering exposure to 1,093 holdings -- substantially broad for a value ETF. Its sector mix leans on financial services (21%), consumer cyclicals (16%), and industrials (13%), with top positions held by Annaly Capital Management (NYSE:NLY), Viatris (NASDAQ:VTRS), and Everest Group (NYSE:EG). Launched over 21 years ago, ISCV offers seasoned performance data and a deep roster of stocks.

IJJ, by contrast, targets mid-cap value through the S&P 400 Value, with 309 stocks and a heavier tilt to financial services (19%), industrials (15%), and consumer cyclicals (12%). Its largest stakes are in US Foods (NYSE:USFD), Jones Lang (NYSE:JLL), and Annaly Capital Management (NYSE:NLY). IJJ's narrower focus and higher liquidity may appeal to those prioritizing tradability or seeking mid-cap exposure specifically.

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What this means for investors

Consider your risk tolerance and target company size when choosing between these two iShares value ETFs. Both funds deliver solid value exposure, so it really comes down to whether you prefer small-cap growth potential (and greater potential volatility) or are seeking mid-cap stability.

ISCV focuses exclusively on small-cap value stocks with market caps below $2 billion, tracking the Morningstar U.S. Small Cap Broad Value Extended Index. With a rock-bottom 0.06% expense ratio and 1.89% dividend yield, it offers an ultra-low-cost way to access smaller companies. The fund holds about $575 million in assets and targets companies showing value characteristics like lower price-to-earnings ratios.

IJJ takes a step up the market cap ladder, investing in mid-cap value stocks through the S&P MidCap 400 Value Index. Its 0.18% expense ratio is still competitive, though slightly higher than ISCV, and it delivers a comparable 1.66% yield. With around $8 billion in assets, IJJ provides exposure to more established mid-sized companies while maintaining value characteristics.

The key trade-off: ISCV offers potentially higher growth from smaller companies but comes with greater volatility. IJJ provides more stability through mid-cap stocks while keeping that value focus.

Glossary

Expense ratio: The annual fee, expressed as a percentage, that a fund charges its investors to cover operating costs.
Dividend yield: Annual dividends paid by a fund divided by its share price, shown as a percentage.
Beta: A measure of an investment's volatility relative to the overall market, typically the S&P 500.
AUM (Assets Under Management): The total market value of all assets managed by a fund or investment company.
Max drawdown: The largest observed percentage drop from a fund's peak value to its lowest point over a specific period.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
Ex-dividend date: The cutoff date to be eligible for the next dividend payment; buying after this date means missing the dividend.
Small-cap: Companies with relatively small market capitalizations, often considered higher risk and growth potential.
Mid-cap: Companies with medium-sized market capitalizations, typically between small-cap and large-cap firms.
Value stocks: Stocks considered undervalued based on financial metrics, often trading below their intrinsic worth.
Liquidity: How easily an asset or security can be bought or sold in the market without affecting its price.
Portfolio diversification: Spreading investments across various assets or sectors to reduce overall risk.

Sara Appino has positions in Annaly Capital Management. The Motley Fool recommends Everest Group. The Motley Fool has a disclosure policy.