Go Big or Go Small? IWM Targets Small-Cap Stocks; MGK Owns Big Tech Stocks

The Vanguard Mega Cap Growth ETF (NYSEMKT:MGK) and the iShares Russell 2000 ETF (NYSEMKT:IWM) differ sharply in cost, yield, sector exposure, and long-term growth, with MGK tracking U.S. mega-cap growth stocks and IWM focusing on small-cap equities.

While both MGK and IWM provide broad U.S. equity exposure, their approaches appeal to different investor goals. MGK targets the largest growth companies, leaning heavily into technology, while IWM offers access to the small-cap segment, spreading assets across nearly 2,000 stocks with a more balanced sector mix.

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.

IWM is more expensive to own, with an expense ratio 0.14 percentage points higher than MGK, but compensates with a dividend yield that is 0.6 percentage points above its mega-cap counterpart.

Performance & risk comparison

What's inside

IWM tracks nearly 2,000 small-cap U.S. stocks, with its largest holdings accounting for a small slice of assets—Bloom Energy Class A Corp (NYSE:BE) at 1.05%, Fabrinet (NYSE:FN) at 0.67%, and Coeur Mining Inc (NYSE:CDE) at 0.62%. The fund’s sector tilt is toward healthcare, industrials, and financial services (18%, 17%, and 16% respectively), and its 25.8-year track record makes it one of the most established small-cap ETFs.

MGK, by contrast, is concentrated in mega-cap growth stocks, allocating over half its assets to technology and featuring NVIDIA Corp (NASDAQ:NVDA), Apple Inc (NASDAQ:AAPL), and Microsoft Corp (NASDAQ:MSFT) as its top holdings. MGK’s narrower portfolio of 69 names means sector and stock-specific trends may drive returns more than in the broadly diversified IWM.

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What this means for investors

For retail investors, exchange-traded funds (ETFs) can be a fantastic way to invest. Let’s compare and contrast two very different ETFs: the Vanguard Mega Cap Growth ETF (MGK) and the iShares Russell 2000 ETF (IWM).

First, let’s examine the MGK. This fund tracks mega-cap growth stocks. That means it’s loaded with big-name tech stocks like Nvidia, Apple, Microsoft, Meta Platforms, and Alphabet, among others. It has a very favorable expense ratio of 0.06%, meaning investors pay only $6 per year for every $10,000 invested in the ETF. All in all, MGK is a great ETF for investors seeking exposure to “Magnificent Seven” stocks.

Then, there’s IWM. This is a very different ETF; it focuses on small-cap stocks. While fewer of its holdings are household names, these are still impressive companies, many with long, distinguished histories and proven business models. IWM is far more diversified, with 2,000 holdings spread across multiple industries. IWM boasts a higher dividend yield of 1.0% compared to MGK’s 0.4%. It also has $73 in AUM, making it one of the largest ETFs around.

In summary, these two funds are quite different. MGK is for investors seeking concentrated exposure to the largest companies on Earth, while IWM is for investors seeking diversification among small-cap stocks. Ultimately, each fund could be the right choice for any given investor, depending on their goals.

Jake Lerch has positions in Nvidia and iShares Trust - iShares Russell 2000 ETF. The Motley Fool has positions in and recommends Apple, Bloom Energy, Microsoft, and Nvidia and is short shares of Apple. The Motley Fool has a disclosure policy.