Are Large-Cap or Small-Cap ETFs the Better Buy? Here's How SPY and IWO Stack Up on Risk and Returns
Key Points
IWO has delivered a higher one-year return but experienced a much steeper five-year drawdown than SPY.
SPY is more cost-effective and offers a higher dividend yield, while IWO charges higher fees for its small-cap growth focus.
IWO’s portfolio tilts heavily toward healthcare and industrials, contrasting with SPY’s large-cap tech dominance.
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The State Street SPDR S&P 500 ETF Trust (NYSEMKT:SPY) and the iShares Russell 2000 Growth ETF (NYSEMKT:IWO) are both popular ETFs, but they differ in their approaches.
SPY aims to mirror the S&P 500 and provides broad exposure to large, established U.S. companies, while IWO focuses on small-cap stocks that exhibit faster growth characteristics.
This comparison may appeal to investors weighing broad, blue-chip stability against smaller, growth-oriented stocks.
Snapshot (cost & size)
| Metric | SPY | IWO |
|---|---|---|
| Issuer | SPDR | iShares |
| Expense ratio | 0.09% | 0.24% |
| 1-yr return (as of March 2, 2026) | 15.49% | 22.34% |
| Dividend yield | 1.05% | 0.54% |
| Beta (5Y monthly) | 1.00 | 1.43 |
| AUM | $709 billion | $13 billion |
Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.
SPY offers a lower expense ratio and a higher yield, while IWO charges more for its small-cap tilt and delivers lower annual payouts.
Performance & risk comparison
| Metric | SPY | IWO |
|---|---|---|
| Max drawdown (5 y) | -24.50% | -42.02% |
| Growth of $1,000 over 5 years | $1,761 | $1,056 |
What's inside
IWO tracks small-cap U.S. companies with growth characteristics, offering exposure to over 1,090 holdings. Its sector allocation leans most heavily on healthcare (25%), technology (22%), and industrials (22%), with top positions in Bloom Energy, Fabrinet, and Credo Technology Group.
SPY, by contrast, covers 503 large-cap names. While it spans all sectors of the market, it’s most heavily focused on technology (34%), financial services (13%), and communication services (11%). Its largest holdings — Nvidia, Apple, and Microsoft — underscore its tilt toward mega-cap tech.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
Deciding between these two strong and popular ETFs will depend on your goals and risk tolerance.
SPY is much broader and larger, focusing exclusively on large-cap stocks across all market sectors. Larger companies tend to be more stable and have a greater chance of surviving market downturns, which can be an advantage for more risk-averse investors.
IWO is more vulnerable to volatility, and its higher beta and steeper max drawdown imply that between the two funds, it’s experienced more significant price fluctuations. The advantage of investing in small-cap stocks, however, is that they often have greater growth potential.
While SPY has outperformed IWO over the last five years (likely due in part to mega-cap tech companies like Nvidia experiencing staggering growth), IWO has edged ahead of SPY in 12-month total returns.
In short, S&P 500 ETFs like SPY tend to be more stable than those focused on smaller growth stocks, but they often have more limited earning potential. IWO’s small-cap exposure can potentially deliver higher returns, but with increased risk of volatility.
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bloom Energy, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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