IJJ vs. VBR: Navigating Volatility and Cost in Value ETFs for Long-Term Growth

For value investors seeking long-term growth, the choice between the iShares S&P MidCap 400 Value ETF (IJJ) and the Vanguard Small-Cap Value ETF (VBR) hinges on a critical trade-off: cost-efficiency versus risk-adjusted performance. Both funds target value-oriented small- and mid-cap equities, but their divergent expense ratios and risk profiles demand careful scrutiny. This analysis evaluates IJJ and VBR through the lenses of cost and risk-adjusted returns, offering insights for investors prioritizing sustainable growth in volatile markets.

Cost-Efficiency: VBR's Edge

Expense ratios, a cornerstone of cost-efficiency, reveal a stark contrast. VBR charges an annual fee of 0.07%, while IJJ's expense ratio is 0.25%-nearly four times higher according to comparison data. Over decades, this difference compounds significantly. For example, a $100,000 investment in VBR would incur $700 in annual fees, compared to $2,500 for IJJ. Lower costs align with the principles of value investing, where frugality and compounding are paramount. As stated by Vanguard, "Reducing fees allows investors to retain more capital for reinvestment", enhancing long-term growth potential.

Risk-Adjusted Returns: A Nuanced Picture

While VBR's cost advantage is clear, IJJ and VBR's risk-adjusted returns tell a more complex story. As of December 2025, IJJ's Sharpe ratio stood at 0.39, and its Sortino ratio at 0.71, compared to VBR's 0.46 and 0.80, respectively according to analysis. The Sharpe ratio, which measures returns per unit of total volatility, suggests VBR delivers better performance relative to its risk. The Sortino ratio, focusing on downside volatility, reinforces this: VBR's higher ratio indicates it generates more return for each unit of adverse risk according to portfolio data.

However, these metrics must be contextualized. IJJ's lower Sharpe ratio places it among the lower-performing value funds relative to broader benchmarks according to performance analysis. For investors prioritizing risk mitigation, VBR's superior risk-adjusted returns could justify its slight tilt toward small-cap exposure, which historically carries higher volatility but also higher growth potential.

Volatility and Drawdowns: Similar Risks, Divergent Peaks

Historical volatility metrics further illuminate the funds' risk profiles. Both IJJ and VBR exhibited nearly identical daily standard deviations (20.58% and 20.61%, respectively) from 2023 to 2025 according to stock comparison data. This parity suggests similar exposure to market swings, a common trait among value-oriented small- and mid-cap ETFs. Yet maximum drawdowns diverged: VBR's -61.98% peak-to-trough decline was more severe than IJJ's -58.00% according to comparison data.

This discrepancy raises a key question: Why does VBR's higher Sortino ratio coexist with a deeper drawdown? The answer lies in the Sortino ratio's focus on downside deviation rather than maximum loss. VBR likely experienced fewer or less frequent downturns outside its worst-case scenario, offsetting its deeper drawdown with more consistent performance during non-crisis periods. For value investors, this underscores the importance of balancing short-term pain with long-term resilience.

Balancing Cost and Risk for Long-Term Growth

The decision between IJJ and VBR ultimately depends on an investor's risk tolerance and cost sensitivity. VBR's lower expense ratio and superior risk-adjusted returns make it a compelling choice for cost-conscious investors seeking to maximize compounding. Its slightly higher maximum drawdown, while notable, may be offset by its better Sortino ratio and lower fees. Conversely, IJJ's modest Sharpe ratio and higher costs could deter investors prioritizing efficiency, though its slightly less severe drawdown might appeal to those wary of small-cap volatility.

For value investors, the broader lesson is clear: low costs and robust risk-adjusted returns are non-negotiables in volatile markets. While neither fund is perfect, VBR's combination of affordability and performance aligns more closely with the principles of long-term, risk-aware investing.

Conclusion

In the IJJ vs. VBR debate, VBR emerges as the more compelling option for value investors focused on cost-efficiency and risk-adjusted returns. Its 0.07% expense ratio and superior Sharpe and Sortino ratios position it as a low-cost, high-utility tool for long-term growth. IJJ, while offering a marginally less severe maximum drawdown, is outpaced by VBR in nearly every other metric. As markets continue to oscillate, the ability to balance cost and risk will remain a defining factor in successful value investing.