iShares vs State Street Small-Cap Growth ETF Showdown

Both iShares Morningstar Small-Cap Growth ETF (NYSEMKT:ISCG) and State Street SPDR S&P 600 Small Cap Growth ETF (NYSEMKT:SLYG) provide exposure to small-cap growth, but they differ significantly in cost, diversification, and recent volatility.

Small-cap growth stocks offer the potential for high returns but often come with elevated volatility. While both funds target this aggressive market segment, they use different indexing methodologies. This comparison examines whether the significantly lower fees of the iShares fund outweigh the historically smoother ride and higher recent returns of the State Street fund.

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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.

The iShares fund is notably more affordable, which can help preserve capital over long-term holding periods. While the State Street fund is also low-cost, the iShares fund offers a distinct price advantage. This difference accompanies a marginally lower dividend payout for investors who prioritize income.

Performance & risk comparison

iShares Morningstar Small-Cap Growth ETF provides broad exposure across 920 holdings, aiming to mirror a benchmark of U.S. companies with smaller market capitalizations. Its sector concentrations lean toward Technology at 25%, Industrials at 21%, and Healthcare at 19%, suggesting a heavy tilt toward tech-driven growth. Its largest positions include Okta Class A (NASDAQ:OKTA) at 1.29%, Atlassian Class A (NASDAQ:TEAM) at 1.08%, and Guardant Health (NASDAQ:GH) at 0.71%. It was launched in 2004. iShares Morningstar Small-Cap Growth ETF has paid $0.40 per share over the trailing 12 months, which on its recent ~$61.94 share price works out to a 0.6% yield.

State Street SPDR S&P 600 Small Cap Growth ETF tracks the S&P SmallCap 600 Growth Index with a more concentrated portfolio of 349 holdings, filtering for companies with expansion in sales and earnings momentum. Its primary sector weights are Technology at 19%, Industrials at 18%, and Healthcare at 16%, showing a more balanced distribution across sectors compared to its iShares peer. Top holdings include Viasat (NASDAQ:VSAT) at 1.14%, Protagonist Therapeutics (NASDAQ:PTGX) at 1.11%, and Ryman Hospitality Properties (NYSE:RHP) at 1.00%. It was launched in 2000. State Street SPDR S&P 600 Small Cap Growth ETF has paid $0.78 per share over the trailing 12 months, which, on its recent ~$108.57 share price, works out to a 0.7% yield.

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Which looks like the better buy

Although iShares Morningstar Small-Cap Growth and State Street SPDR S&P 600 Small Cap Growth ETF both target U.S. small-cap growth stocks, they differ. Here's why one may be a better fit for you than the other.

Why ISCG may be a better fit

• Lower cost: ISCG's expense ratio is 0.06%, versus SLYG's 0.15%. That 0.09 percentage-point difference is money you can reinvest.
• Broader holdings: With over 900 holdings, ISCG provides wider company-level diversification than SLYG.

Why SLYG may be a better fit

• Selection method: If you prefer a benchmark that screens for financial viability, the State Street SPDR S&P 600 Small Cap Growth ETF may be a good fit. One thing to keep in mind, though: A benchmark that screens for financial viability may exclude some rapidly growing but unprofitable companies.
• Greater focus: Since SLYG's index includes fewer companies, you can focus on those firms rather than hundreds of additional small-cap names.

Choosing between ISCG and SLYG comes down to whether you prioritize breadth and lower fees or a more selective index. Choose ISCG if you're looking for broader options at a lower cost, or SLYG if you're looking for a more selective index.

Dana George has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Atlassian and Okta. The Motley Fool recommends Guardant Health, Protagonist Therapeutics, and Ryman Hospitality Properties. The Motley Fool has a disclosure policy.