The Russell 2000 Index and the S&P SmallCap 600 Index, two of the most widely followed U.S. small-cap benchmarks, are up 7.9% and 5.3%, respectively, year to date. Those statistics confirm what is widely known – small caps are lagging their larger peers this year, as highlighted by a 2017 gain of 11.6% for the S&P 500. Still, there is an interesting tussle taking place between the iShares Russell 2000 ETF (IWM) and the iShares Core S&P Small-Cap ETF (IJR), two of the largest small-cap exchange-traded funds (ETFs).

Home to $41.1 billion in assets under management, IWM is and has been the largest U.S. small-cap ETF by a significant margin, but IJR is encroaching on that status. IWM has lost assets this year, which "is not the case for the competing IJR, which has pulled in an impressive more than $4.3 billion year to date," said Street One Financial Vice President Paul Weisbruch in a note out last week. (See also: iShares Russell 2000 ETF: Top 5 Holdings.)

To be precise, recent inflows to IWM have pared the ETF's year-to-date outflows to about $311 million, a far cry from the nearly $4.3 billion that investors have allocated to IJR. What is interesting about the flows discrepancy between the two titans of small-cap ETFs is that IWM is outperforming IJR by 260 basis points this year. "With access to 2,000 stocks, IWM and the Russell 2000 clearly run rather deep in terms of portfolio diversification, and the fund weightings are typically spread out well across the basket with any potential 'overweightings' being avoided," adds Weisbruch.

IWM holds just over 2,000 stocks, while IJR has 602 holdings. The latter has a way to go to catch the former, as IJR has just under $32.1 billion in assets under management. However, one reason why IJR is making inroads against its larger rival is a lower fee. IJR charges 0.07% per year, or $7 on a $10,000 investment, compared with an annual fee of 0.2% on IWM. (See also: Now Is the Time to Focus on Small-Cap Stocks.)

IJR allocates about half its weight to the industrial, financial services and technology sectors. IWM devotes over half its weight to financials, technology and healthcare. Another important difference between the two ETFs is that the S&P SmallCap 600 Index has a financial viability requirement, which can help mitigate some of the volatility associated with investing in smaller stocks.

Even with that requirement, IJR's three-year standard deviation of 14.1% is only slightly below the 14.8% found on IWM. The median market value of IJR's holdings is $1.11 billion compared with a weighted average market capitalization of $2.15 billion on IWM's components. (See also: Top 3 Small-Cap ETFs for 2017.)

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