VONG vs. IWO: Vanguard Russell 1000 Growth ETF Has Outperformed iShares Rival

The Vanguard Russell 1000 Growth ETF (NASDAQ:VONG) offers low-cost exposure to large-cap giants, while the iShares Russell 2000 Growth ETF (NYSEMKT:IWO) targets smaller companies with potentially higher volatility and price sensitivity.

Growth investors often face a choice between established market leaders and emerging innovators. The Vanguard fund tracks the large-cap growth market, offering exposure to the world's most dominant corporations, while the iShares fund focuses on small-cap stocks that may offer higher growth potential but are more price-sensitive.

Snapshot (cost & size)

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

Cost-conscious investors might find the Vanguard fund particularly attractive given its 0.06% expense ratio, which is one-quarter the iShares fund's 0.24% fee. Both funds currently offer a matching dividend yield of 0.4%.

Performance & risk comparison

What's inside

The Vanguard Russell 1000 Growth ETF (VONG) provides exposure to approximately 394 holdings, with the technology sector accounting for 51% of the portfolio. Other major allocations include communication services at 13% and consumer cyclical stocks at 13%. Its largest positions include Nvidia Corp (NASDAQ:NVDA) at 13.21%, Apple Inc (NASDAQ:AAPL) at 11.11%, and Microsoft Corp (NASDAQ:MSFT) at 8.68%. Launched in 2010, the fund has a trailing-12-month dividend of $0.56 per share and seeks to mirror the performance of large U.S. growth companies.

By comparison, the iShares Russell 2000 Growth ETF (IWO) targets the small-cap segment with a portfolio that reflects technology at 24%, industrials at 23%, and healthcare at 22%. Its largest holdings include Bloom Energy Corp (NYSE:BE) at 3.36%, Fabrinet (NYSE:FN) at 1.50%, and Credo Technology Group Holding Ltd (NASDAQ:CRDO) at 1.50%. This fund, launched in 2000, manages its exposure through a strategy that currently shows one primary holding in its reported data. It has paid $1.51 per share over the trailing 12 months.

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Which looks like the better buy

The Vanguard Russell 1000 Growth ETF (VONG) and the iShares Russell 2000 Growth ETF (IWO) are both ETFs worth considering, particularly for growth-oriented investors. Here are some key differences between the two.

First, let’s examine VONG. This fund has massive exposure to big tech giants like Apple, Nvidia, and Microsoft. Consequently, VONG’s performance tends to replicate what an investor might achieve with a broad-based ETF tracking the S&P 500. Indeed, VONG has delivered a total return of 102% over the last five years, slightly better than the S&P 500’s 91% return over the same period. VONG has delivered a compound annual growth rate (CAGR) of 15.2%, also slightly better than the S&P 500’s 13.8%. Finally, the fund boasts a very low expense ratio of only 0.06%.

Turning to IWO, this fund tracks the small-cap segment within the Russell 2000. Yet, since small-caps have underperformed tech mega-caps, overall performance has been weaker in recent years. The fund has generated a total return of 32% over the last five years, equating to a CAGR of 5.7%. That’s significantly below what both the S&P 500 and VONG have delivered over the same period.

As for similarities, both funds have a modest dividend yield of 0.4%. In addition, both funds have over $10 billion in AUM, suggesting liquidity should not be an issue.

In summary, for most investors, VONG will be the more appealing fund, due to its lower expense ratio and superior performance history. However, given that VONG is very similar to the S&P 500, some investors may favor IWO to diversify their portfolios.

Jake Lerch has positions in Nvidia. The Motley Fool has positions in and recommends Apple, Bloom Energy, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.