IJR vs ISCB: Which Small-Cap ETF Wins on Liquidity and Diversification?

Quick Comparison: Two Paths to Small-Cap Exposure

The iShares Core SP Small-Cap ETF (NYSEMKT: IJR) and iShares Morningstar Small-Cap ETF (NYSEMKT: ISCB) both provide exposure to U.S. small-cap stocks, yet they operate under fundamentally different strategies. IJR dominates in scale with $88 billion in assets under management, while ISCB takes a diversification-first approach with 1,539 individual holdings spread across its portfolio. Understanding these distinctions helps investors choose the right vehicle for their goals.

Size, Costs, and Income: The Numbers

ISCB edges out IJR on fees, charging just 0.04% annually versus 0.06%. However, IJR compensates income-seeking investors with a 1.9% dividend yield—a 70 basis-point advantage over ISCB’s 1.2%. Over time, this yield differential can meaningfully impact total returns for those reinvesting distributions.

Holdings and Diversification: Breadth vs. Concentration

The portfolio composition reveals each fund’s philosophy. ISCB casts a significantly wider net with 1,539 positions, ensuring minimal overlap and reduced single-stock risk. Its top three holdings—Ciena (NYSE: CIEN), Coherent (NYSE: COHR), and Rocket Lab (NASDAQ: RKLB)—each represent less than 1% of assets, exemplifying true diversification.

IJR follows a more concentrated approach with 635 holdings. Its largest positions include Hecla Mining (NYSE: HL), Spx Technologies (NYSE: SPXC), and Dycom Industries (NYSE: DY), similarly capped at small weightings. Both funds maintain consistent sector exposure across industrials (around 19%), technology (16%), and financial services (15%), though allocation weights vary slightly.

Performance and Risk: How They’ve Weathered Volatility

Despite ISCB’s superior recent returns (6.4% over one year), both funds exhibit similar downside protection. IJR’s 5-year maximum drawdown of -28.02% slightly outperforms ISCB’s -29.94%, suggesting marginally better performance during market stress. Over five years, $1,000 invested in IJR grew to approximately $1,396, versus $1,382 in ISCB—demonstrating IJR’s slight edge in compounding returns.

Beta readings of 1.21 (IJR) and 1.27 (ISCB) confirm both funds amplify broader market movements, which is typical for small-cap vehicles seeking growth exposure.

Liquidity and Practicality: Trading Volume Matters

This is where IJR’s billion-dollar scale becomes decisive. Daily trading volume regularly exceeds 6 million shares, making it one of the most liquid small-cap ETFs on the market. Investors executing large positions face minimal slippage, and entry-exit timing poses no constraints.

ISCB’s $257.3 million in assets translates to considerably lighter trading volume. For retail investors making modest purchases, this rarely matters. For institutions or those planning six-figure trades, IJR’s liquidity advantage is substantial and potentially worth the 0.02% expense ratio premium.

Which ETF Fits Your Strategy?

Choose IJR if you:

• Prioritize easy, frictionless trading and deep liquidity
• Seek higher current income through dividend yield
• Prefer the stability and track record of a mega-cap fund managing $88 billion
• Want proven resilience during market downturns

Consider ISCB if you:

• Demand rock-bottom costs and can live with 0.04% fees
• Value maximum diversification across 1,539 small-cap names
• Manage smaller position sizes where liquidity isn’t a bottleneck
• Accept lower trading volume in exchange for broader exposure

Both funds deliver legitimate small-cap exposure without gimmicks or specialized tilts. The choice hinges on whether you prioritize liquidity, income, and scale (IJR) or cost efficiency and diversification (ISCB).

Key Definitions

• Expense Ratio: Annual management fee charged as a percentage of your invested assets
• Dividend Yield: Annual cash distributions expressed as a percentage of current fund price
• Holdings: Individual stocks within the fund’s portfolio
• AUM: Total dollar value of assets the fund manages
• Beta: Volatility measure relative to the S&P 500 (>1 means higher volatility)
• Max Drawdown: Largest peak-to-trough percentage decline over a specified period
• Liquidity: Ease of buying or selling without impacting the asset’s price