IWN vs. ISCV: Which Small-Cap ETF Is the Best Choice for Investors?

The small-cap value segment of the U.S. equity market has long been a battleground for investors seeking growth and value. Two of the most prominent exchange-traded funds (ETFs) in this space-iShares Russell 2000 Value ETF (IWN) and iShares Morningstar Small-Cap Value ETF (ISCV)-offer distinct approaches to capturing this niche. While both target small-cap value stocks, their differences in expense ratios, performance, and portfolio construction raise critical questions for investors prioritizing risk-adjusted returns and diversification.

Cost Efficiency and Performance: A Trade-Off?

ISCV has emerged as a cost leader in the small-cap value space, with an expense ratio of just 0.06% as of December 2025 according to Yahoo Finance. This low-cost structure appeals to passive investors seeking to minimize drag on returns. By contrast, IWN charges 0.24%, nearly four times ISCV's fee as reported by The Motley Fool. Yet, performance metrics tell a different story: IWN delivered a 13.4% total return over the past year, outpacing ISCV's 11.37% according to The Motley Fool. This suggests that while ISCV is cheaper, IWN's higher returns may partially offset its higher fees-a dynamic that could favor risk-adjusted returns if volatility and diversification are comparable.

Diversification: Holdings and Sector Allocation

Diversification is a cornerstone of risk management, particularly in volatile small-cap markets. ISCV holds over 1,100 stocks, with 24.4% concentrated in the Financials sector according to Yahoo Finance. IWN, meanwhile, maintains a broader portfolio of more than 1,400 stocks and allocates 27% to Financials, alongside an 11% stake in Healthcare-a sector absent in ISCV's top holdings as reported by The Motley Fool. This broader sector exposure in IWN may reduce idiosyncratic risk, particularly during economic cycles where Financials and Healthcare exhibit divergent performance.

A unique feature of IWN is its inclusion of a money market fund as its largest holding as reported by The Motley Fool. While this reduces overall portfolio volatility, it also dilutes growth potential. For investors prioritizing pure small-cap exposure, this allocation could be a drawback. ISCV, by contrast, avoids such a hybrid approach, focusing entirely on equities.

Risk-Adjusted Returns: What's Missing?

The absence of Sharpe ratios, volatility, and beta metrics for both ETFs complicates a direct risk-adjusted return analysis as reported by The Motley Fool. However, indirect indicators provide insight. ISCV's lower expense ratio enhances net returns, a factor that indirectly improves risk-adjusted performance by amplifying gains during upswings and mitigating losses during downturns. IWN's higher returns, despite its elevated fees, suggest stronger alpha generation-but without volatility data, it's unclear whether these gains come with proportionally higher risk.

Strategic Implications for Investors

For investors prioritizing cost efficiency and pure small-cap value exposure, ISCV's low fees and concentrated equity holdings make it an attractive option. Its broader Financials allocation aligns with a traditional value tilt, which has historically outperformed in rising-rate environments.

Conversely, IWN's broader sector diversification and higher returns may appeal to those seeking a balance between growth and stability. The inclusion of Healthcare-a sector often less correlated with Financials-could enhance diversification benefits during market stress. However, the presence of a money market fund introduces a layer of complexity, potentially skewing the ETF's risk profile.

Conclusion

Neither IWN nor ISCV is universally superior. ISCV's cost advantage and focused equity strategy make it a compelling choice for passive, long-term investors. IWN, with its higher returns and broader sector exposure, suits those willing to pay a premium for enhanced diversification and growth potential. In the absence of granular risk metrics, investors must weigh these factors against their own risk tolerance and market views. For now, the choice between these two ETFs hinges on a classic trade-off: cost versus performance, and purity versus diversification.