ISCV vs. IJJ: The Case for Lower-Cost, Broadly Diversified Small-Cap Value Exposure

In the ever-evolving landscape of value investing, cost efficiency, diversification, and risk-adjusted returns remain paramount for investors seeking long-term growth. Two exchange-traded funds (ETFs) that have garnered attention in this space are the iShares Morningstar Small-Cap Value ETF (ISCV) and the iShares S&P Mid-Cap 400 Value ETF (IJJ). While both target value-oriented strategies, their structural differences-particularly in expense ratios, portfolio breadth, and risk profiles-make them compelling choices for distinct investor priorities. This analysis delves into these factors to determine which ETF better aligns with the principles of cost-conscious, diversified value investing.

Cost Efficiency: ISCV's Edge in Low Fees

Cost efficiency is a cornerstone of value investing, as lower expense ratios directly enhance net returns over time. According to a report by , ISCV charges an expense ratio of 0.06%, significantly undercutting IJJ's 0.18%. This 0.12% difference may seem modest, but over decades, it can meaningfully erode IJJ's returns due to compounding. For instance, an investor allocating $100,000 to ISCV would retain an additional $3,000 in fees over 10 years compared to IJJ, assuming identical returns.

Moreover, ISCV's affordability is complemented by a slightly higher dividend yield of 1.89% versus IJJ's 1.66%, offering investors a dual benefit of income generation and cost savings. This combination makes ISCV particularly appealing to long-term investors prioritizing capital preservation and modest income streams.

Diversification: Broader Exposure with ISCV

Diversification is another critical factor in mitigating risk within value portfolios. ISCV's portfolio spans 1,093 holdings, dwarfing IJJ's 309 stocks. This broader exposure reduces concentration risk, as ISCV's holdings are spread across smaller, often overlooked companies with market caps below $2 billion. In contrast, IJJ focuses on mid-cap firms, which, while less volatile than small-cap stocks, still carry higher risk than large-cap benchmarks like the S&P 500.

However, diversification comes with trade-offs. ISCV's smaller-cap focus inherently introduces higher volatility. Historical data from reveals that ISCV experienced a maximum drawdown of 25.35% over five years, compared to IJJ's 22.68%. While this suggests ISCV's risk profile is slightly more aggressive, its broader diversification may cushion against sector-specific downturns, making it a balanced choice for investors willing to tolerate short-term fluctuations for long-term value.

Risk-Adjusted Returns: Balancing Volatility and Performance

Risk-adjusted returns provide a nuanced lens for evaluating ETFs. The Sharpe ratio, which measures returns per unit of risk, highlights IJJ's historical stability. As of November 2025, IJJ's Sharpe ratio stood at 0.45, while ISCV's 1-year Sharpe ratio was 0.50, though its 10-year ratio lagged at 0.36. This discrepancy underscores ISCV's potential for higher short-term returns but lower consistency over longer horizons.

The Sortino ratio, which focuses on downside risk, further differentiates the two. IJJ's 5-year Sortino ratio of 0.60 indicates superior performance in managing downside volatility compared to ISCV, for which no Sortino data was available. Additionally, ISCV's beta of 1.22-versus IJJ's 1.14-reflects its greater sensitivity to market movements. For risk-averse investors, IJJ's lower beta and higher Sortino ratio may justify its higher fees.

Conclusion: Choosing Between ISCV and IJJ

The decision between ISCV and IJJ ultimately hinges on investor priorities. ISCV's lower expense ratio, broader diversification, and higher dividend yield make it an attractive option for cost-conscious investors seeking small-cap value exposure. Its slightly higher volatility, however, necessitates a tolerance for market swings. Conversely, IJJ's narrower focus on mid-cap stocks, coupled with a more stable risk profile and better downside protection, suits investors prioritizing consistency over aggressive growth.

In a market where value investing is regaining traction, both ETFs offer unique advantages. For those prioritizing affordability and diversification, ISCV emerges as the clear choice. Yet, for investors seeking a more balanced approach to risk and return, IJJ remains a stalwart in the mid-cap value arena.