Choosing Between Small-Cap and Mid-Cap Value Funds: The IJJ vs. VBR Breakdown for Smart Investors

The Core Difference: Cost, Scale, and Market Segment

When comparing Vanguard Small-Cap Value ETF (VBR) and iShares SP Mid-Cap 400 Value ETF (IJJ), three factors immediately stand out. VBR’s expense ratio of 0.07% nearly cuts in half what IJJ charges at 0.18% — a meaningful savings over decades of investing. VBR also dwarfs IJJ in assets under management, holding $59.6 billion compared to IJJ’s $8 billion. Most critically, these small-cap funds operate in different market segments: VBR pursues small-cap value stocks while IJJ zeroes in on mid-cap names. This fundamental difference reshapes the entire risk-return equation.

Performance: Similar Returns, Different Depths

Both funds delivered solid single-year results as of late December 2025, with VBR returning 8.06% and IJJ trailing slightly at 7.6%. However, the story gets more complex over longer horizons. A $1,000 investment in VBR over five years grew to $1,502, while the same amount in IJJ reached $1,537 — suggesting IJJ’s mid-cap tilt provided marginal outperformance. Yet VBR’s 5-year maximum drawdown reached -24.19% versus IJJ’s -22.68%, revealing the inherent volatility of small-cap funds during downturns. Both funds maintained similar beta measures (VBR at 1.12, IJJ at 1.14), indicating comparable price sensitivity to broader market swings.

What’s Inside Each Fund: Portfolio Composition Matters

VBR’s strength lies in its sweeping diversification across 840 holdings, each representing less than 1% of the fund. This small-cap funds strategy distributes risk widely among names like NRG Energy, SanDisk, and EMCOR Group. Sector exposure runs broad: industrials (19%), financial services (18%), and consumer cyclicals (13%).

IJJ takes a tighter approach with just 309 holdings, creating concentrated bets on mid-cap value opportunities. Financial services weighs heaviest (19%), followed by industrials (15%) and consumer cyclicals (12%). This focused portfolio theoretically offers different risk and return dynamics — potentially smoother performance but less diversification than VBR’s expansive small-cap funds approach.

Dividend Yield and Income Generation

VBR edges out IJJ on income generation with a 1.97% dividend yield versus IJJ’s 1.66%. For income-focused investors, this 31-basis-point advantage compounds meaningfully over time, though both funds remain relatively modest income sources compared to higher-yield alternatives.

The Real Question: Which Investor Profile Fits Which Fund?

The decision hinges on two competing priorities. For cost-conscious growth seekers: VBR’s ultra-low 0.07% fee and exposure to small-cap funds makes it the obvious choice, especially over 20-30 year horizons where fee differences compound dramatically. The broader 840-stock portfolio also provides comfort through diversification.

For stability-minded value hunters: IJJ’s mid-cap orientation offers a psychological and practical middle ground. Mid-cap companies have graduated from startup-stage riskiness but retain genuine expansion runway — delivering neither the wild swings of small-cap funds nor the stagnation risk of large-cap peers. The trade-off is accepting slightly higher fees and less portfolio breadth.

The data tells a straightforward story: small-cap funds like VBR offer better long-term value through cost efficiency and scale, but midcap vehicles like IJJ may sleep better at night for investors uncomfortable with sharp drawdowns.