SLYV and ISCV Both Offer Small-Cap Value Diversification, but Which One Is the Better Investment?

Both the iShares Morningstar Small-Cap Value ETF (NYSEMKT:ISCV) and the State Street SPDR S&P 600 Small Cap Value ETF (NYSEMKT:SLYV) target U.S. small-cap stocks with value characteristics, but they differ in approach, breadth, and cost.

SLYV tracks the S&P SmallCap 600 Value Index, while ISCV tracks a Morningstar index, making this a practical comparison for investors seeking efficient, diversified access to small-cap value equities.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

ISCV is more affordable on fees, with a much lower expense ratio. However, SLYV offers a higher dividend yield, which could appeal to income-focused investors.

Performance & risk comparison

What's inside

ISCV tracks a Morningstar small-cap value index, holding 1,092 stocks with top sector allocations of financial services (21% of total assets), consumer cyclicals (15%), and industrials (13%). Its largest positions -- Sandisk, Rocket Companies, and Annaly Capital Management -- each make up less than 1% of assets, making for a broadly diversified fund.

The portfolio’s high holding count reduces single-stock risk and offers wide sector exposure, with no leverage, currency hedge, or ESG screens to complicate the strategy.

SLYV, in contrast, holds 459 positions with a similar sector tilt: financial services (20%), consumer cyclicals (16%), and industrials (14%). Its top holdings include BorgWarner, Hecla Mining Company, and Qorvo, and each makes up just over 1% of assets. SLYV’s focus on the S&P SmallCap 600 Value Index results in a more concentrated -- but still diversified -- portfolio without unusual structural features or strategies.

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What this means for investors

ISCV and SLYV both offer small-cap value exposure, but they differ in their diversification, annual fee structure, and performance.

ISCV is the more diversified of the two, holding more than double the number of stocks as SLYV. Its top three holdings also make up a slightly smaller portion of the overall portfolio, making it marginally less top-heavy.

ISCV also has the edge on fees, with an expense ratio of just 0.06% compared to SLYV's 0.15%. In other words, investors can expect to pay $6 per year in fees for every $10,000 invested, compared to $15 per year with SLYV. While it's a slight difference, it can amount to hundreds or even thousands of dollars per year for long-term investors with a significant amount invested.

Finally, ISCV has earned higher 12-month and five-year total returns, with less volatility along the way -- as evidenced by its slightly lower beta and less severe max drawdown. While small-cap stocks can be more volatile than larger companies in general, ISCV's lower risk profile can be an advantage for some investors.

Where SLYV shines, though, is its higher dividend and larger assets under management (AUM). While its dividend yield is only slightly higher than ISCV's, it can add up over time -- giving it a distinct edge for those seeking passive income from their ETF. Its higher AUM also implies greater liquidity, allowing investors to buy and sell larger amounts without affecting the price.

These two small-cap value ETFs are similar in many ways, but there are a few small differences that set them apart. The right one for you will depend on your goals and what you're looking to achieve with an ETF.

Glossary

Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Small-cap: Refers to companies with relatively small market capitalizations, typically between $300 million and $2 billion.
Value characteristics: Traits of stocks considered undervalued based on financial metrics like price-to-earnings or price-to-book ratios.
Index: A benchmark that tracks the performance of a specific group of securities, such as stocks or bonds.
Dividend yield: Annual dividends paid by a fund or stock, expressed as a percentage of its current price.
Beta: A measure of a security’s volatility compared to the overall market, often the S&P 500.
AUM (Assets Under Management): The total market value of assets that 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 industry sectors compared to others.
Single-stock risk: The risk that poor performance by one company can significantly impact a fund’s returns.
Leverage: The use of borrowed money to increase potential returns, which also increases risk.
Currency hedge: A strategy to reduce the impact of currency fluctuations on investment returns.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Companies. The Motley Fool recommends BorgWarner and Qorvo. The Motley Fool has a disclosure policy.