The iShares Morningstar Small-Cap ETF (ISCB) and the State Street SPDR Portfolio S&P 600 Small Cap ETF (SPSM) both offer access to the U.S. small-capitalization equity segment. However, a granular examination reveals discernible differences in portfolio construction, cost efficiency, and resultant performance characteristics. This analysis will delineate these distinctions, providing a comparative assessment for investors contemplating allocation to this asset class.
Key Metrics: A Snapshot
| Metric | SPSM | ISCB |
|---|---|---|
| Issuer | SPDR | iShares |
| Expense Ratio | 0.03% | 0.04% |
| 1-Year Return (as of 2026-01-09) | 11.2% | 17.46% |
| Dividend Yield | 1.62% | 1.38% |
| AUM | $13.08 billion | $253.45 million |
SPSM presents a marginally lower expense ratio and a comparatively higher dividend yield, potentially appealing to cost-conscious investors prioritizing current income. ISCB, while exhibiting a slightly elevated cost structure, demonstrates broader diversification and, over the recent performance horizon, superior total returns.
Performance & Risk Parameters
| Metric | SPSM | ISCB |
|---|---|---|
| Maximum Drawdown (5 Years) | (34.83%) | (32.26%) |
| Growth of $1,000 (5 Years) | $1,290 | $1,323 |
While both ETFs exhibit comparable maximum drawdown figures, ISCB has generated a marginally higher return on a $1,000 investment over the five-year period. This disparity may be attributable to its broader portfolio diversification and, potentially, factor exposures.
Portfolio Composition: A Deeper Dive
ISCB’s portfolio encompasses 1,578 small-cap U.S. equities, with significant sector allocations to Industrials (19%), Financial Services (17%), and Healthcare (13.9%). Top holdings—Lumentum Holdings (LITE), Albemarle Corp (ALB), and Kratos Defense and Security Solutions (KTOS)—each represent a modest proportion of total assets, reinforcing the fund’s diversification profile. Its 21.5-year tenure suggests a degree of stability in its investment approach.
SPSM, in contrast, holds 607 U.S. small-cap stocks, with a slightly greater emphasis on Financial Services (18%), followed by Industrials (16%) and Technology (15%). Top positions—Arrowhead Pharmaceuticals (ARWR), Sanmina Corp (SANM), and Advanced Energy Industries (AEIS)—also maintain a limited weighting within the portfolio. This structure positions SPSM as a straightforward, low-cost vehicle for gaining exposure to the small-cap segment.
Implications for Investors
Allocation to small-cap equities can serve as a diversification strategy, potentially enhancing portfolio returns. However, this asset class typically exhibits higher volatility than large-cap equities, necessitating a commensurate risk tolerance. The choice between ISCB and SPSM should be informed by an investor’s specific objectives and constraints.
SPSM’s lower expense ratio offers a cost advantage, while ISCB’s broader diversification and recent performance warrant consideration. The substantial disparity in Assets Under Management (AUM) – SPSM at $13.08 billion versus ISCB’s $253.45 million – raises questions regarding liquidity and potential tracking error, particularly during periods of market stress. ISCB’s greater number of holdings may contribute to its performance, though this also necessitates ongoing monitoring to ensure efficient portfolio management.
The weighting towards Healthcare within ISCB may appeal to investors seeking exposure to a defensive sector, while SPSM’s concentration in Technology aligns with current market trends. However, sector-specific allocations should be considered within the context of an overall portfolio strategy.
Glossary
- ETF: Exchange-Traded Fund, a pooled investment vehicle that trades on an exchange.
- Expense Ratio: Annual operating expenses expressed as a percentage of assets.
- Dividend Yield: Annual dividends paid as a percentage of share price.
- AUM: Assets Under Management, the total market value of fund holdings.
- Small-Cap: Companies with relatively low market capitalization.
- Sector Weight: Percentage of fund assets allocated to a specific industry.
- Holdings: Individual securities owned by the fund.
- Max Drawdown: Largest peak-to-trough decline in value.
- Growth of $1,000: Illustration of investment growth over time.
- Liquidity: Ease of buying or selling an investment without impacting price.
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2026-01-17 16:36