Is IWM or SPY the Better ETF for Investors? Here's What the Data Says
Key Points
IWM charges a higher expense ratio than SPY and holds nearly four times as many stocks.
Recent one-year performance favors IWM, but its five-year max drawdown is notably deeper.
IWM’s sector mix tilts toward healthcare and industrials, while SPY remains tech-heavy.
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The State Street SPDR S&P 500 ETF Trust (NYSEMKT:SPY) and the iShares Russell 2000 ETF (NYSEMKT:IWM) track different parts of the U.S. equity market.
SPY targets large-cap U.S. stocks and aims to mirror the S&P 500 Index, while IWM targets small-cap U.S. equities and tracks the Russell 2000 Index. This comparison highlights how the two funds differ in cost, performance, and risk, helping investors consider which may better fit their goals.
Snapshot (cost & size)
| Metric | SPY | IWM |
|---|---|---|
| Issuer | SPDR | iShares |
| Expense ratio | 0.09% | 0.19% |
| 1-yr return (as of March 2, 2026) | 15.49% | 22.92% |
| Dividend yield | 1.05% | 0.98% |
| Beta (5Y monthly) | 1.00 | 1.30 |
| AUM | $709 billion | $74 billion |
Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.
IWM comes with a higher expense ratio than SPY, making it a costlier choice for investors focused on minimizing fees. Yield is nearly identical, so the main cost difference lies in fees rather than income payout.
Performance & risk comparison
| Metric | SPY | IWM |
|---|---|---|
| Max drawdown (5 y) | -24.50% | -31.91% |
| Growth of $1,000 over 5 years | $1,761 | $1,167 |
What's inside
IWM tracks the Russell 2000, providing exposure to U.S. small-cap stocks with a portfolio spanning 1,938 holdings.
The fund’s largest sector weights are healthcare (18%), industrials (17%), and financial services (17%), and its top holdings include Bloom Energy, Fabrinet, and Credo Technology Group, each representing 1% of assets or less.
SPY, by contrast, reflects the S&P 500’s large-cap universe, concentrating over a third of assets in technology, plus significant allocations to financial services and communication services.
Its top stocks — Nvidia, Apple, and Microsoft — collectively make up nearly 20% of the fund, leading to a more top-heavy profile than IWM. Neither fund carries leverage, ESG mandates, or other structural quirks.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
SPY and IWM take vastly different approaches to equities: one targets large-cap giants, while the other focuses on smaller companies.
The biggest advantage of investing in an S&P 500 ETF like SPY is the stability. The S&P 500 includes 500 of the largest U.S.-based companies, and these stocks are more likely to weather market volatility and deliver consistent growth over the long term.
Small-cap stocks, on the other hand, can carry more risk, but they also have greater growth potential than many of their larger counterparts. IWM contains nearly 2,000 small-cap stocks, and if any of them become superstar performers, it could set this ETF up for potentially lucrative returns.
Volatility is something to consider with a small-cap ETF, and IWM’s higher beta and deeper five-year drawdown signal more intense price fluctuations. While IWM has underperformed over the last five years, it has edged past SPY with higher 12-month total returns.
Both ETFs can be strong buys, but the best fit for your portfolio will depend on your comfort with risk and desired growth potential.
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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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