IWY vs. IWO: IWY Goes Heavy on Big Tech, While IWO Focuses on Small Caps. Is Either One a Must-Own ETF?

The iShares Russell Top 200 Growth ETF (NYSEMKT:IWY) focuses on large-cap U.S. growth stocks and charges a slightly lower expense ratio than the small-cap-oriented iShares Russell 2000 Growth ETF (NYSEMKT:IWO), which offers broader diversification but with higher volatility and risk.

Both IWY and IWO track U.S. growth equities, but with sharply different approaches: IWY concentrates on the largest 200 companies, while IWO targets smaller, faster-growing firms. This comparison highlights how these choices affect risk, returns, diversification, and costs for investors considering growth-focused exchange-traded funds (ETFs).

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.

IWY looks a bit more affordable with a 0.20% expense ratio, compared to IWO’s 0.24%. IWO offers a slightly higher yield, but the difference is minor at just 0.1 percentage point.

Performance & Risk Comparison

What's Inside

IWY packs in just 110 holdings, with a pronounced tilt toward technology: 66% of assets land in that sector, and the top three positions—Nvidia Corp (NASDAQ:NVDA), Apple Inc (NASDAQ:AAPL), and Microsoft Corp (NASDAQ:MSFT)—account for a combined 37.41% of the portfolio. The fund’s age of over 16 years signals a long track record, but its concentration means performance rides heavily on a handful of mega-caps.

By contrast, IWO offers exposure to more than 1,000 small-cap growth stocks, spreading assets across healthcare, technology, and industrials. Its largest positions—Bloom Energy Class A Corp (NYSE:BE), Credo Technology Group Holding Ltd (NASDAQ:CRDO), and Kratos Defense And Security Solutions (NASDAQ:KTOS)—are much smaller weights, resulting in less single-stock risk but higher volatility and deeper historical drawdowns. Both funds avoid leverage, currency hedges, or other structural quirks.

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What This Means For Investors

Let's face it: On the surface, IWY and IWO appear to be very similar ETFs. After all, they both track growth stocks. Yet, the way these two funds go about this goal is very different, and, as a result, there are key differences between the two funds. Let's explore what they are.

To begin, let's focus on IWO. This fund tracks over 1,000 growth stocks in the small cap category. These stocks have a market cap of less than $2 billion. Investors in IWO gain exposure to many industries -- technology, financials, healthcare, and consumer goods to name just a few. Over the last year, IWO has delivered solid performance, generating a one-year return of 20.2%. However, on the flip side, IWO is rather volatile. Over the last five years, it has experienced a max drawdown of more than 42%.

Then there's IWY. Unlike IWO, which spreads its holdings across over 1,000 small cap stocks, IWY zeroes in on the 200 largest growth stocks in the U.S. market. As a result, its top holdings list if full of well-known names like Nvidia, Microsoft, and Apple. Yet, while this approach isn't particularly novel, it's difficult to argue with the results. Over the last five years, IWY has generated a total return of 117%, equating to a compound annual growth rate (CAGR) of 16.7%. That's far ahead of IWO, which has generated a total return of 17% over the same period, with a CAGR of only 3.2%.

To conclude, IWY's long-term performance is far better than IWO's. In addition, IWY has a lower expense ratio (0.20% versus 0.24%). That said, IWY may not be the best choice for investors seeking exposure to large cap growth stocks, given its relatively high expense ratio of 0.20%. Meanwhile, IWO's vast holdings make it appealing to investors seeking diversification, however, its long-term performance leaves much to be desired. As a result, neither fund stands out as a must-own ETF for average investors.

Glossary

ETF (Exchange-Traded Fund): A fund holding a basket of securities, traded on an exchange like a stock.
Growth stocks: Companies expected to grow earnings faster than the market, often reinvesting profits instead of paying dividends.
Large-cap: Companies with relatively high market values, typically among the largest in the stock market.
Small-cap: Companies with relatively low market values, generally earlier-stage or smaller businesses.
Expense ratio: Annual fund operating costs expressed as a percentage of the fund’s average assets.
Dividend yield: Annual dividends paid by a fund or stock divided by its current market price.
Beta: A measure of an investment’s volatility compared with the overall market, usually the S&P 500.
AUM (Assets Under Management): Total market value of all assets managed within a fund or by an investment firm.
Max drawdown: The largest peak-to-trough percentage loss an investment experiences over a specific period.
Total return: Investment performance including price changes plus all dividends and distributions, assuming reinvestment.
Sector tilt: When a fund allocates more of its assets to certain industries than the broader market does.
Single-stock risk: Risk that performance is overly influenced by one or a few individual holdings.

Jake Lerch has positions in Nvidia. The Motley Fool has positions in and recommends Apple, Bloom Energy, Kratos Defense & Security Solutions, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.