Explore how each ETF’s sector mix, risk profile, and cost structure could shape your growth investing strategy.

Vanguard Russell 1000 Growth ETF (VONG 0.47%) and iShares Russell 2000 Growth ETF (IWO 1.17%) target different corners of the U.S. growth equity market, with VONG leaning large-cap and IWO focusing on small-cap stocks — resulting in notable differences in cost, risk, and sector exposure.

Both funds aim to capture growth in U.S. equities, but VONG tracks large, established companies from the Russell 1000 Growth Index, while IWO focuses on smaller, up-and-coming firms in the Russell 2000 Growth segment. This comparison examines whether IWO’s small-cap approach stands up to VONG’s large-cap focus.

what’s inside

The iShares Russell 2000 Growth ETF (IWO) throws its hat in the ring with over 1,000 U.S. small-cap growth stocks, spreading its assets across technology, healthcare, and industrials. Top holdings, like Bloom Energy, Credo Technology Group Holding, and Fabrinet, each clock in at less than 2% of assets. That’s a broad and diversified approach for you!

In contrast, the Vanguard Russell 1000 Growth ETF (VONG) swings heavily towards large-cap technology. With a good chunk of the pie in Nvidia, Apple, and Microsoft, VONG shows sensitivity to shifts in mega-cap tech. IWO, meanwhile, offers broader diversification with a nod to emerging growth companies.

For more guidance on ETF investing, check out the full guide at this link.

snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-year return represents total return over the trailing 12 months.

IWO charges a noticeably higher annual expense ratio than VONG, but it’s still below the industry average for ETFs. In exchange, IWO delivers a slightly higher yield, though the difference is modest at just 0.2 percentage points.

performance & risk comparison

what this means for investors

Since 2010, VONG has delivered total returns of over 1,000% compared to IWO’s 408%. For perspective, the S&P 500 rose nearly 700% over the same time. While this outperformance might make VONG look like the obvious pick, it’s not everyone’s cup of tea.

The main gripe with VONG? It’s essentially a concentrated bet on the Magnificent Seven (plus Broadcom). These eight stocks make up 59% of VONG’s assets. In the S&P 500, the same crowd takes up 38%. So if the Magnificent Seven’s race slows or reverses, VONG might not look too pretty.

Meanwhile, the IWO ETF rolls out a whole different approach, targeting a wide array of small-cap growth stocks at more reasonable valuations. IWO’s P/E ratio sits at 24, whereas VONG’s is a steeper 39.

Personally, I’d lean towards IWO, despite its recent underperformance. It’d broaden my exposure to stocks I know less about, unlike VONG’s laser focus on the attention-grabbing tech giants. And yet, IWO’s expense ratio, though higher at 0.24%, trails the ETF industry’s average.

glossary

• ETF: Exchange-traded fund; a pooled investment that trades on stock exchanges like a single stock.
• Expense ratio: The annual fee, as a percentage of assets, that a fund charges investors for management and operating costs.
• Dividend yield: Annual dividends paid by a fund or stock, expressed as a percentage of its current price.
• Beta: A measure of a fund’s volatility compared to the overall market, typically the S&P 500.
• Max drawdown: The largest percentage drop from a fund’s peak value to its lowest point over a specified period.
• AUM: Assets under management; the total market value of assets a fund manages on behalf of investors.
• Large-cap: Companies with large market capitalizations, generally considered more established and stable.
• Small-cap: Companies with smaller market capitalizations, often younger and potentially higher growth but riskier.
• S&P 500: A widely followed index of 500 large U.S. companies, used as a benchmark for the stock market.
• Sector diversification: Spreading investments across different industry sectors to reduce risk.
• Total return: The investment’s price change plus all dividends and distributions, assuming those payouts are reinvested.
• Growth stock: A company expected to grow earnings or revenue faster than the market average.

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