Vanguard S&P 500 Growth ETF (VOOG) vs. iShares Russell 2000 Growth ETF (IWO): Which ETF Is the Better Buy for Investors?

Choosing between the Vanguard S&P 500 Growth ETF (NYSEMKT:VOOG) and the iShares Russell 2000 Growth ETF (NYSEMKT:IWO) involves weighing the stability and momentum of established industry leaders against the potential of small-cap innovators.

While both focus on growth-oriented companies, their portfolio concentrations and market-cap focuses result in distinct risk and reward profiles.

Snapshot (cost & size)

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

VOOG is the more affordable fund in terms of fees, offering a significantly lower expense ratio than IWO. The two funds offer nearly identical dividend yields, so income may not be a differentiating factor for investors.

Performance & risk comparison

What's inside

VOOG holds 149 stocks and is heavily weighted toward the technology sector, which accounts for 53% of its portfolio. Its largest positions include Nvidia, Microsoft, and Apple, and those three stocks collectively make up nearly 32% of the fund. It was launched in 2010 and has paid $0.37 per share in dividends over the trailing 12 months.

In contrast, IWO focuses on smaller companies, with 30% of its assets allocated to healthcare and 21% to technology. Its largest positions include Twist Bioscience, Moog, and Jfrog, with each weighted at less than 1% of the portfolio. The fund maintains a much broader portfolio of 1,127 holdings and has paid $1.69 per share in dividends over the trailing 12 months.

For more guidance on ETF investing, check out the full guide at this link.

Which looks like the better buy

While both VOOG and IWO target growth-oriented companies, they take diverging approaches -- leading to different risk profiles, performance, and diversification.

Because VOOG only includes growth stocks that are listed in the S&P 500, its portfolio is much narrower than IWO's. However, all of its holdings are large-cap companies with strong track records, which can result in a more stable portfolio. VOOG offers both a lower beta and milder max drawdown, suggesting less severe price fluctuations over the last five years.

IWO, on the other hand, targets only small-cap stocks. While smaller companies can sometimes offer more growth potential than their more established counterparts, they can also be more volatile in the short term.

VOOG has outperformed IWO in both one- and five-year total returns, but that may be due to large-cap tech stocks' lucrative gains over the last few years. If the demand for AI technology continues, these tech companies could have more room to grow. But if the tech sector falters, VOOG will likely be hit much harder than IWO.

In short, IWO's small-cap focus has historically led to more short-term volatility and lower returns, but VOOG's outsize concentration on tech could make it a riskier choice if AI stocks stumble in the coming years. Regardless of which option you choose, a long-term outlook can help reduce the impact of market volatility.

Katie Brockman has positions in Vanguard Admiral Funds - Vanguard S&P 500 Growth ETF. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Twist Bioscience. The Motley Fool recommends JFrog and Moog. The Motley Fool has a disclosure policy.