IWO vs. VUG: Comparing Growth ETFs With Different Focuses

Both the Vanguard Growth ETF (NYSEMKT:VUG) and iShares Russell 2000 Growth ETF (NYSEMKT:IWO) aim to capture U.S. growth stocks, but VUG does so through a large-cap lens, while IWO targets small-cap stocks. This comparison explores their differences across cost, performance, risk, and portfolio construction, helping investors weigh which approach best aligns with their risk tolerance and growth preferences.

Snapshot (cost & size)

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

IWO has a higher expense ratio, but its higher dividend yield and return within the last 12 months may make the expenses more feasible for investors.

Performance & risk comparison

What's inside

Based on the Russell 2000, IWO tracks small-cap growth stocks, splitting its 1,102 holdings with a balanced approach, having even sector allocation across the healthcare, industrials, and technology sectors. Its top three positions are Bloom Energy Corp. (NYSE:BE), Credo Technology Group Holding Ltd. (NASDAQ:CRDO), and Kratos Defense & Security Solutions (NASDAQ:KTOS), with no stock accounting forup more than 2% of total assets. The fund has consistently focused on small-cap stocks for over 25 years.

VUG is concentrated in large-cap names, with the technology sector making up half of total assets. The only three companies that hold more than 10% weight in the fund are NVIDIA (NASDAQ:NVDA), Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT), collectively accounting for over a third of the portfolio, giving it a strong mega-cap tilt. This focus may appeal to those seeking established growth companies rather than the broader, more diversified approach of IWO.

What this means for investors

When investing in growth ETFs like those mentioned, it’s important to understand the potential for abnormal volatility. Small-cap stocks are more prone to large price swings because companies may either generate abnormal deficits/revenue that can spike returns, or lose more money during economic uncertainty, which can drop prices. Thus, with IWO’s portfolio full of small-cap companies, the ETF’s price can fluctuate dramatically at times.

With VUG, a heavy reliance on tech stocks can backfire if the sector experiences a market downturn, which is unlikely in the long term for the top tech firms but still possible. Also, with the top three companies in the fund’s holdings having substantially more weight than the rest, if one of those companies experiences a catastrophic event, investors may very well see that reflected within the fund’s performance.

It should also be noted that VUG may hold multiple classes of a company’s stock among its top holdings, as it holds Class A and Class C shares of Alphabet (NASDAQ:GOOGL) in its top ten holdings.

Regardless, VUG is a solid option for tech exposure, but for a more balanced investment, IWO is a better option.

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

Adé Hennis has positions in Apple and Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, Bloom Energy, Kratos Defense & Security Solutions, Microsoft, Nvidia, and Vanguard Index Funds - Vanguard Growth ETF. The Motley Fool has a disclosure policy.