ISCV Beat IJJ Over the Past Year. Here's Why That Gap Could Easily Reverse.

iShares Morningstar Small-Cap Value ETF (NYSEMKT:ISCV) provides lower-cost access to small-cap value stocks, while iShares S&P Mid-Cap 400 Value ETF (NYSEMKT:IJJ) offers exposure to larger, mid-capitalization companies.

Investors seeking value-oriented equities often weigh the trade-offs between mid-cap and small-cap segments. While IJJ targets the middle of the market, ISCV focuses on smaller companies. Both funds utilize value screens but differ significantly in their expense ratios, market capitalization focus, and total assets under management (AUM).

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.

With an expense ratio of 0.06%, the iShares Morningstar Small-Cap Value ETF is notably more affordable than the 0.18% charged by the iShares S&P Mid-Cap 400 Value ETF. The small-cap fund also currently provides a slightly higher yield for income-focused investors.

Performance & risk comparison

The iShares Morningstar Small-Cap Value ETF has delivered higher one-year total returns but also experienced a deeper maximum drawdown over the five-year period, reflecting the typical volatility associated with smaller companies. Over a longer five-year horizon, the mid-cap focus of the iShares S&P Mid-Cap 400 Value ETF has resulted in a slightly higher growth of a $1,000 investment.

What's inside

The iShares Morningstar Small-Cap Value ETF, launched in 2004, manages a broad portfolio of 1,069 holdings. Its sector allocation is led by financial services at 21.00%, consumer cyclical at 13.00%, and industrials at 13.00%. Its largest positions include Akamai Technologies (NASDAQ:AKAM) at 0.70%, CF Industries (NYSE:CF) at 0.65%, and Viatris (NASDAQ:VTRS) at 0.63%. Over the trailing 12 months, the fund paid $1.41 per share in dividends.

In contrast, the iShares S&P Mid-Cap 400 Value ETF was launched in 2000 and holds 305 positions. It is similarly concentrated in financial services at 22.00%, industrials at 19.00%, and consumer cyclical at 13.00%. Top holdings include Reliance Steel & Aluminum (NYSE:RS) at 1.16%, US Foods (NYSE:USFD) at 1.11%, and Wesco International (NYSE:WCC) at 1.07%. It has a trailing-12-month dividend of $2.34 per share.

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What this means for investors

Small-cap and mid-cap stocks both sit outside the S&P 500's spotlight, but they behave quite differently. Small-cap companies are earlier in their growth journey, more sensitive to domestic economic shifts, and capable of sharper gains and losses. Mid-cap companies have generally proven their business models and tend to offer a steadier ride, sitting between the volatility of small caps and the predictability of large caps. Both tiers have historically rewarded patient value investors over long time horizons.

ISCV outpaced IJJ over the past year, reflecting a period when small-cap value stocks benefited from optimism around domestic economic growth and deregulation. That kind of outperformance is typical of small caps in risk-on environments, but the gap can reverse quickly when uncertainty rises and investors gravitate toward the relative safety of larger companies.

ISCV also charges significantly less than IJJ, a meaningful advantage for long-term holders. It’s also the more enticing choice for aggressive investors willing to accept more volatility for greater growth potential. IJJ's much larger asset base and longer track record give it an edge in liquidity and institutional credibility, making it the more measured option for those who want value exposure with a smoother long-term experience.

Sara Appino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Wesco International. The Motley Fool recommends Akamai Technologies. The Motley Fool has a disclosure policy.