The Rising Small-Cap ETF That Challenges the Popular Mid-Cap ETF

Both the iShares SP Mid-Cap 400 Value ETF (NYSEMKT:IJJ)and the iShares Morningstar Small-Cap Value ETF (NYSEMKT:ISCV) invest in similar markets, but differ in size, cost, and market cap focus. IJJ focuses on mid-cap value, while ISCV tilts toward smaller companies with a broader portfolio and lower fees.

*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 appears to be more affordable with a lower expense ratio, and its yield edges slightly higher than IJJ’s, which may appeal to cost-conscious investors seeking a modest income boost.

ISCV tracks a small-cap value universe, holding 1,097 stocks with a heavy tilt toward financial services (21%), consumer cyclicals (15%), and industrials (13%). Its largest positions, such as SanDisk (NASDAQ:SNDK), Blk Csh Fnd Treasury Sl Agency (XTSLA), and Rocket Companies Class A (NYSE:RKT), are each under 1% of assets, making the fund broadly diversified. With over 21 years in the market, ISCV offers exposure to smaller, more volatile companies that can behave differently from the broader market.

By contrast, IJJ focuses on the mid-cap value segment, with top sectors in financial services (19%), industrials (15%), and consumer cyclicals (12%). Its top holdings—Flex (NASDAQ:FLEX), Talen Energy Corporation (NASDAQ:TLN), and US Foods Holding (NYSE:USFD)—hold slightly larger weights, but the fund overall is more concentrated, tracking 296 stocks. IJJ’s approach may suit those who prefer mid-sized companies, which may offer potentially greater stability than small caps.

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Along with having a smaller expense ratio, ISCV also has a slightly cheaper trailing price-to-earnings (P/E) ratio compared to IJJ over the last 12 months. The small-cap ETF has a P/E ratio of 15.50, while IJJ’s is 18.30, making ISCV appear to be an even more affordable investment. It is also worth noting that ISCV has more than triple the total holdings of the mid-cap ETF, making its diversity abundantly clear.

Both ETFs are solid options for those looking to invest in a variety of sectors, especially in financial services, consumer cyclicals, industrials, and tech. They are established ETFs, having existed for over 20 years, and serve as two of the top funds that iShares has to offer. Both have generated similar total returns since inception, at slightly over 10%. With that being said, for a cheaper and broader investment, ISCV is a more ideal option.

Expense ratio: The annual fee, expressed as a percentage of assets, that an ETF or fund charges investors.
Dividend yield: The annual dividends paid by a fund divided by its share price, shown as a percentage.
Beta: A measure of an investment’s volatility compared to the overall market; a beta above 1 means higher volatility.
AUM (Assets Under Management): The total market value of all assets managed by a fund or investment company.
Max drawdown: The largest percentage drop from a fund’s peak value to its lowest point over a specific period.
Small-cap: Refers to companies with a relatively small total market value, typically between $300 million and $2 billion.
Mid-cap: Refers to companies with a medium total market value, generally between $2 billion and $10 billion.
Value stocks: Stocks considered undervalued compared to their fundamentals, often trading at lower price-to-earnings ratios.
Consumer cyclicals: Companies whose business performance is closely tied to the economic cycle, such as retailers or automakers.
Financial services: The sector that includes banks, insurance companies, and other firms providing financial products or services.
Industrial sector: Companies involved in manufacturing, construction, or production of goods and services for industry.
Portfolio breadth: The number and diversity of holdings within a fund, indicating how widely its investments are spread.

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Adé Hennis 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.

ISCV vs. IJJ: The Rising Small-Cap ETF That Challenges the Popular Mid-Cap ETF was originally published by The Motley Fool