Can the Mid-Cap ETF Compete with a Small-Cap Fund?

Both the iShares Russell 2000 Value ETF (NYSEMKT:IWN) and iShares SP Mid-Cap 400 Value ETF (NYSEMKT:IJJ) aim to provide value exposure within the U.S. equity market, but they differ in company size and sector emphasis. This comparison examines their costs, portfolio composition, risk, and performance data to help investors decide which may better align with their preferences for value investing.

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.

IJJ is more affordable with a lower expense ratio and offers a slightly higher dividend yield, which may appeal to cost-conscious investors seeking income.

IJJ tracks a basket of mid-cap value stocks, emphasizing financial services, industrials, and consumer cyclical companies across 311 holdings. Its largest positions include US Foods Holding Corp. (NYSE:USFD), Reliance, Inc.(NYSE:RS), and Alcoa Corp. (NYSE:AA). Created over 20 years ago, the ETF has delivered consistent long-term growth.

Launched on the same day as IJJ, IWN holds a much broader group of value stocks, holding 1,413 small-cap stocks with a similar sector allocation. Its top holdings include EchoStar Corp.(NASDAQ:SATS), Hecla Mining Company (NYSE:HL), and TTM Technologies, Inc. (NASDAQ:TTMI), but each makes up a relatively small portion of the portfolio, reflecting the fund’s wide diversification among small companies.

For more guidance on ETF investing, check out the full guide at this link.

In terms of choosing between the two ETFs, one of the biggest deciding factors will be how much risk investors are willing to take. Small-cap stocks are widely considered the most volatile among large-cap and mid-cap assets. This is because small-cap companies are often younger, less established, and/or may serve more niche markets, making them more vulnerable to operational decline or failure. However, small-cap stocks tend to be more volatile because there’s more room for growth, which can be beneficial if the price rises.

Large-cap stocks are going to involve the more established companies, while mid-cap stocks are sometimes regarded as the “sweet spot” between the other types, as there’s a level of solid foundation and still room for growth. Therefore, IWN’s price will correlate with the volatility of small-cap stocks, while IJJ will be more stable, like the mid-cap companies it holds.

What’s interesting is that IJJ has outperformed IWN by more than 20% over the past five years and overall entire existence. So for a less-risky pick, IJJ is more ideal and still offers considerable price gains.

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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.

IJJ vs. IWN: Can the Mid-Cap ETF Compete with a Small-Cap Fund? was originally published by The Motley Fool