IShares S&P Small-Cap 600 Value ETF IJS is a compelling option in the small-cap value Morningstar Category. Its low fee, broad diversification, and slight quality tilt make it hard to beat. It earns a Morningstar Analyst Rating of Bronze.
 
The fund tracks the S&P SmallCap 600 Value Index, which sweeps in stocks from the cheaper half of the S&P SmallCap 600 Index. Value stocks are usually characterized by low price/book and low price/earnings ratios. Depressed valuations may be caused by slow earnings growth, poor fundamentals, or dim future prospects. While these may not be the most exciting firms, the low expectations implied in their valuations should be easier to beat. 

Market-cap weighting is an efficient way to allocate the portfolio because it harnesses the market's consensus opinion on the relative value of each stock. Stocks that grow in size take up a larger share of the portfolio, while smaller companies that may be struggling take on a less important role. Market-cap weighting contains turnover but strict size constraints can increase it. When a high number of stocks cross into or out of the adjacent S&P MidCap 400 Index, such as in 2020, the fund can face higher transaction costs than most index peers. 

The S&P SmallCap 600 Index operates on the smaller end of the small-cap market, collecting the smallest 600 companies in the S&P Composite 1500 Index. Its average holding is less than half the size of the average small-value fund. Small-cap stocks tend to be more volatile than their larger peers, so the fund should thrive during market upswings but may fall a little faster than its average peer during broad selloffs. That said, this fund’s parent index should prevent it from some of the riskiest stocks by screening new constituents for profitability.

Past performance bore this out. In the 10 years through December 2022, the fund's annualized standard deviation of returns was almost a percentage point greater than the category average. Still, its risk-adjusted returns edged out the average peer, as high-octane, smaller stocks fueled a considerable outright return advantage. Investors can expect a bumpy ride, but its low fee and focus on profitable companies across the small value segment make this strategy especially compelling.

Analyst Rating

High-performing small-value fund.

Associate Analyst

Zachary Evens

Meritage Homes

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Signet Jewelers

Lincoln National

Carpenter Technology

A slight quality tilt and sound diversification should minimize the risks of the fund's smaller orientation. It earns an Above Average Process Pillar rating.

The S&P SmallCap 600 Value Index assigns a growth and value score to each stock in the S&P SmallCap 600 Index. Those in the cheapest third are allocated to the value index, while the fastest growing third are swept into the S&P SmallCap 600 Growth Index. The middle third is split between the two indexes based on their style traits until the market cap for each amounts to approximately half of the S&P SmallCap 600 Index. 

This approach admits some blend and growth names into the value index, improving its breadth across the value-growth spectrum. Almost 30% of its portfolio overlaps with iShares S&P Small-Cap 600 Growth ETF IJT.

S&P requires all new entrants to be profitable to join the index. While each holding may not currently be profitable, that should reduce the number of struggling companies included in the portfolio and gives the fund a modest quality tilt. The quality factor has historically been tied to market-beating performance, so that should provide a boost to this fund.

Above Average

Process

BlackRock's industry-leading technology, global footprint, and extensive supporting cast earn an Above Average People Pillar rating. The team employs BlackRock's Aladdin platform to fulfill much of its portfolio management tasks, and global trading desks allow for traders to conduct foreign transactions in a cost-effective way.

The iShares team has had some turnover over the past few years. But index-tracking performance should remain tight, thanks to heavily automated processes and several long-tenured mangers that remain at the helm. Rachel Aguirre left the team in March 2021 after she was promoted to iShares' head of product engineering. Paul Whitehead replaced Alan Mason as manager in January 2022, when Mason left to focus on the firm's customized institutional indexing capabilities. Whitehead joins Greg Savage, Jennifer Hsui, and Amy Whitelaw, who will continue to oversee this fund and have helped manage iShares ETFs since the early 2000s. 

These managers interact with a wider team of traders and managers around the globe to execute the fund's day-to-day operations. The larger number of managers also limits the impact of personnel turnover when it does occur. A portion of their compensation is tethered to index-tracking performance, which aligns the managers' interests with investors.

People

BlackRock offers compelling options across asset classes and vehicles. It earns an Above Average rating for Parent. 
The firm’s approximately USD 8 trillion in assets under management, as of Sept. 30, 2022, gives it unparalleled scale and influence. It is a market-leading index fund provider globally, and its iShares exchange-traded fund franchise offers a low-cost lineup of core funds that investors can use to build a well-diversified portfolio for dirt cheap. The firm can be more adventurous in its ETF launches than some peers, so not everything it launches is appropriate for the masses. As a result, it is likely to have more ETF closures than peers that stick to the basic building blocks.  
The firm’s active fixed-income and multi-asset efforts also stand out as some of the best in the industry. Those benefit from BlackRock’s commitment to building a first-class risk management system via its Aladdin analytics software. The software is also available for sale to other firms and has proved to be a popular option for competitors, a testament to its usefulness. 
More recently, the firm has shifted its focus to ESG offerings and incorporating ESG across its investment lineup, leading to a political backlash in the United States.
BlackRock isn’t the best at everything it tries to do, but retail investors, financial advisors, and large institutions could all build robust portfolios using BlackRock’s products.

Parent

iShares S&P Small-Cap 600 Value ETF

IJS tracks an index of small-cap US stocks. The index uses three factors to select value firms from the S&P 600.

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An allocation to small caps could enhance your returns.

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Up 33% for the year, the iShares S&P Small-Cap 600 Value ETF (IJS) is showcasing advantages in two investing categories: small cap equities and value. IJS seeks to track the investment results of the S&P SmallCap 600 Value IndexTM, which measures the performance of the small-capitalization value sector of the U.S. equity market.

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When it comes to rotating out of growth-fueled investments and into value-tilted assets, investors shouldn't forget about small-cap equities. While they might tend to lean towards the growth side of the equation, investors can still get value exposure in small-caps with ETFs like the iShares S&P Small-Cap 600 Value ETF (IJS).

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News for iShares S&P Small-Cap 600 Value ETF ETF (IJS)