VBR vs. IWN: How These Small-Cap Value ETFs Compare on Fees, Risk, and Returns

The choice between the Vanguard Small-Cap Value ETF (NYSEMKT:VBR) and the iShares Russell 2000 Value ETF (NYSEMKT:IWN) may depend on whether investors prioritize VBR’s ultra-low fees or IWN’s diversification.

Investors often look to small-cap value stocks for long-term growth potential and diversification away from the tech-heavy S&P 500. While both funds target smaller companies, the specific index each fund follows creates different risk-reward profiles.

This comparison looks at how these two popular ETFs measure up on cost, performance, and portfolio composition.

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.

Cost-conscious investors may find VBR more appealing with its lower expense ratio, as this fee gap can compound significantly over a long investment horizon. VBR also offers a higher dividend yield than IWN, which may appeal to investors seeking income alongside investment growth.

Performance & risk comparison

What's inside

IWN was launched in 2000 and seeks to track the investment results of an index of small-cap U.S. equities with value characteristics. The fund holds nearly 1,400 stocks, providing a high degree of diversification across the small-company universe.

Its sector allocation is notably weighted toward financial services, making up 24% of assets, followed by industrials and healthcare. Its largest positions include Echostar, TTM Technologies, and Coeur Mining.

In comparison, VBR was launched in 2004 and tracks the CRSP US Small Cap Value Index. It manages a more concentrated portfolio of 838 holdings, focusing on slightly larger companies compared to the Russell index. The fund follows a passively managed, full-replication approach to minimize tracking error.

Its sector mix prioritizes financial services at nearly 18% of assets, with industrials and consumer cyclical rounding out the top three sectors. The fund's largest positions include NRG Energy, Atmos Energy, and Tapestry.

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What this means for investors

VBR and IWN share many similar characteristics, both focusing on small-cap stocks with value characteristics. This makes them both relatively stable funds with potential for consistent long-term growth.

With similar betas and max drawdowns, these two funds have experienced roughly the same levels of volatility over the last five years. They’ve also earned similar five-year returns, though IWN has outperformed VBR over the last 12 months.

Diversification, fees, and dividends are the main differentiating factors between these two ETFs. IWN holds nearly twice as many stocks as VBR, offering a broader approach to the small-cap value segment of the market. However, it also leans more heavily into financial services stocks. That could potentially make a difference in performance — for better or worse — depending on how that sector fares going forward.

VBR has an edge in both fees and income, with a lower expense ratio and higher dividend yield. It charges an expense ratio of just 0.05% compared to IWN’s 0.24%, meaning investors will pay $5 per year in fees for every $10,000 invested in VBR, compared to $24 per year with IWN. Over time, this difference could add up to thousands of dollars.

Both of these ETFs can be smart buys, and with relatively few differences between them, you can’t go wrong with either one. Investors seeking additional holdings and greater exposure to financial services may prefer IWN, while those focused on reducing fees may opt for VBR.

Katie Brockman has positions in Vanguard Small-Cap Value ETF. The Motley Fool recommends Tapestry. The Motley Fool has a disclosure policy.