Looking for Small-Cap Value? Consider These 2 ETFs

The iShares Morningstar Small-Cap Value ETF (ISCV +0.49%) stands out for its lower cost and higher yield, while the iShares Russell 2000 Value ETF (IWN +0.79%) brings more assets, higher liquidity, and a different sector profile to the table.

Both ISCV and IWN target small-cap U.S. stocks with value characteristics, but each tracks a different index and lands on a distinct mix of holdings.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months.

ISCV looks more affordable thanks to its 0.06% expense ratio, undercutting IWN by 0.18 percentage points, and it pays a slightly higher dividend yield at 2.0% versus IWN’s 1.6%, which could appeal to income-focused investors.

Performance & risk comparison

What’s inside

ISCV holds about 1,077 small-cap U.S. stocks and has been around for nearly 22 years. Its sector mix is led by financial services (23%), consumer cyclical (13%), and industrials (13%). Top holdings are relatively small slices, with Moderna Inc (MRNA +1.43%), CF Industries Holdings Inc (CF 5.59%), and Alcoa (AA +4.80%) each under 0.7%. The fund does not carry leverage, currency hedging, or ESG overlays.

IWN, by contrast, spreads its portfolio across 1,400 companies with notable weights in financial services (25%), industrials (12%), and healthcare (10%). Its largest positions include Echostar Corp Class A (SATS +5.53%), Hecla Mining (HL +1.35%), and TTM Technologies Inc (TTMI +6.32%), all below 1.1%. The differences in sector allocation and top holdings may influence performance during different economic cycles.

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What this means for investors

These are both iShares funds, but they mine different portions of the small-cap universe for value stocks.

ISCV tracks the Morningstar Small Cap Value Index, which includes stocks from the bottom 10% of the market cap spectrum that exhibit value characteristics and have high dividend yields, among other screens. Thus, the ETF might be a solid option for income investors looking to diversify into small-cap value. The fund has a 12-month distribution yield of 1.91% and a 30-day yield of 2.09%.

The iShares Russell 2000 Value ETF focuses on value stocks in the Russell 2000 index and is considerably more diversified, with some 1,400 holdings.

The IWN ETF has been the superior performer over the last one- and three-year periods, but the ISCV ETF has the better track record over the past five- and 10-year periods.

If you are looking to diversify into small-cap value stocks, both are solid options. But if you had to pick one, you might want to consider ISCV as it has a better distribution yield, a lower expense ratio, and better long-term returns.