IJT vs. RZG: Two Small-Cap ETFs But One Has Performed Largely Better

Focused on the growth sector, both the iShares S&P Small-Cap 600 Growth ETF (NASDAQ:IJT) and the Invesco S&P SmallCap 600 Pure Growth ETF (NYSEMKT:RZG)offer broad-based exposure to small-cap growth companies. However, RZG focuses on a “pure” growth subset based on sales, earnings, and momentum. This comparison highlights where their approaches diverge in terms of cost, performance, risk, and portfolio composition.

Snapshot (cost & size)

*Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns.

IJT looks more affordable with an expense ratio of 0.18% versus 0.35% for RZG, and it also delivers a higher dividend yield at 0.9% compared to RZG’s 0.36% payout.

Performance & risk comparison

What's inside

IJT holds 342 stocks, offering broad exposure across small-cap growth, with the largest sector weights in technology (20%), industrials (19%), and healthcare (17%). Its top holdings—Arrowhead Pharmaceuticals (NASDAQ:ARWR)(undefined), Armstrong World Industries (NYSE:AWI), and InterDigital (NASDAQ:IDCC) are each under 1.4% of assets, helping to spread risk. The fund’s 25-year track record makes it one of the longest-running small-cap growth ETFs on the market.

RZG, in contrast, tracks a “pure” growth methodology and holds 135 stocks, with a heavier tilt towards healthcare (27%). Top positions include Progyny (NASDAQ:PGNY), ACM Research (NASDAQ:ACMR), and ARMOUR Residential REIT (NYSE:ARR).

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What this means for investors

It's important to understand what "pure" growth actually is. RZG is based on the S&P SmallCap 600 Pure Growth Index, which utilizes a growth score to identify stocks that exhibit strong or "pure" growth. The three factors used to create that score are sales growth, the ratio of earnings change to price, and momentum. Companies that don't meet the criteria are excluded from the fund, which is why RZG has nearly three times fewer total holdings of IJT.

Pure growth ETFs are designed to outperform regular growth ETFs, but that doesn't guarantee it will always be the case. RZG has outperformed IJT over the last 12 months; however, when examining the period of the last five years, the 13.43% return of the pure growth ETF falls short of IJT's 21% return within that period.

For short-term gains, RZG may be the more ideal option for investors. If investors want to prioritize cheaper expenses, long-term gains, as well as broader exposure and higher dividend yield, ITJ is more ideal.

Glossary

Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Assets under management (AUM): The total market value of all assets managed by a fund.
Small-cap: Refers to companies with relatively small market capitalizations, typically between $300 million and $2 billion.
ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Drawdown: The maximum decline in value from a fund's peak to its lowest point over a specific period.
Dividend yield: The annual dividend income expressed as a percentage of the fund's current price.
Beta: A measure of a fund's volatility compared to the overall market, usually the S&P 500.
Sector weight: The percentage of a fund's assets invested in a particular industry sector.
Pure growth methodology: An index approach that selects stocks with the strongest growth characteristics, such as sales and earnings momentum.
Leverage: The use of borrowed money to increase potential investment returns, which also increases risk.
ESG overlay: An investment strategy that incorporates environmental, social, and governance criteria into fund selection.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.

Adé Hennis has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Corcept Therapeutics and Progyny. The Motley Fool recommends Protagonist Therapeutics. The Motley Fool has a disclosure policy.