IJJ vs. IWN: Which iShares Value ETF Is the Better Buy for Investors?

The iShares S&P Mid-Cap 400 Value ETF (NYSEMKT:IJJ) provides a lower-cost entry to mid-cap value stocks, while the iShares Russell 2000 Value ETF (NYSEMKT:IWN) offers broader exposure to the small-cap segment.

Investors seeking value exposure outside the tech-heavy large-cap space often evaluate these two iShares funds. While both utilize a value-based indexing strategy, they target distinct market-capitalization tiers. This comparison examines how their differences in scale and concentration could influence a long-term portfolio strategy.

Snapshot (cost & size)

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

IJJ is slightly more affordable than IWN, featuring a 0.18% expense ratio. The mid-cap fund also offers a higher payout, with a 1.77% dividend yield compared to the Russell 2000 fund’s 1.63%.

Performance & risk comparison

What's inside

The iShares S&P Mid-Cap 400 Value ETF (IJJ) focuses on mid-sized companies identified by its index as undervalued. Its sector allocations include financial services at 22%, industrials at 18%, and consumer cyclicals at 14%. The portfolio contains 303 holdings, and its largest positions include U.S. Foods (1.23%), Reliance Steel & Aluminum (1.10%), and Alcoa (1.02%). This fund launched in 2000 and has paid $2.34 per share in dividends over the trailing 12 months.

The iShares Russell 2000 Value ETF (IWN) offers broader diversification, with 1,398 holdings focused on small-cap value stocks. Its sector tilts favor financial services at 24%, industrials at 12%, and healthcare at 11%. Top holdings include Echostar at 1.01%, TTM Technologies at 0.96%, and Coeur Mining at 0.62%. Like the mid-cap fund, it launched in 2000 and has a trailing-12-month dividend of $3.09 per share.

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What this means for investors

Since launching in 2000, IJJ and IWN have delivered annualized total returns of 10.3% and 9.3%, respectively. For comparison, the iShares Core S&P 500 ETF delivered an annualized return of 8.3% over the same period. That is pretty impressive outperformance from these smaller-stock-focused ETFs. While I think they are both excellent, reasonably priced alternatives for investors looking to diversify away from the mega-cap tech behemoths, I would personally lean toward IJJ for one key reason.

The vast majority (if not typically all) of the stocks in IJJ are profitable, whereas roughly 35% to 40% of the stocks in IWN are not. In a way, I see IJJ’s mid-cap stock holdings as operating in an investing “sweet spot,” where they’ve grown large and mature enough to maintain profitability -- but remain small enough to still offer immense growth upside. Meanwhile, IWN is home to many younger, still up-and-coming companies that have yet to hit their stride profitability-wise. Said another way, IWN is more boom-or-bust, whereas IJJ is more of the steady Eddie type of investment I tend to prefer.

Ultimately, I think both options are fine for investors interested in small stocks, but IJJ’s more profitable holdings, slightly higher dividend yield, lower expense ratio, smaller five-year drawdown, and better long-term total returns have me leaning toward the mid-cap ETF.

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