ISCG vs. RZG: How Do These Small Cap ETFs Measure Up to One Another?

The iShares Morningstar Small-Cap Growth ETF (NYSEMKT:ISCG) stands out for its ultra-low costs and broader portfolio, while the Invesco S&P SmallCap 600 Pure Growth ETF (NYSEMKT:RZG) brings a narrower, more healthcare-tilted approach and a five-year growth of $1,154 on $1,000, slightly higher than ISCG’s $1,095.

Both ISCG and RZG target U.S. small-cap growth stocks, but they differ in cost, diversification, and sector emphasis. This comparison digs into how these differences, along with recent returns and risk profiles, may appeal to investors seeking exposure to the small-cap growth segment.

Snapshot (Cost & Size)

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

ISCG is significantly more affordable, with an expense ratio nearly 0.3 percentage points lower than RZG, and it also offers a slightly higher dividend yield, which may appeal to cost-conscious investors seeking a modest payout boost.

Performance & Risk Comparison

What's Inside

ISCG tracks a broad small-cap growth index and holds 971 stocks, making it one of the most diversified options in the segment. Its sector mix is led by industrials (23%), technology (20%), and healthcare (17%). The top holdings—Lumentum Holdings Inc (NASDAQ:LITE), Kratos Defense And Security Solutions (NASDAQ:KTOS), and Ati Inc (NYSE:ATI)—are each less than 1% of assets, pointing to a highly diversified approach. The fund has a long track record, with over 21 years in operation.

RZG, in contrast, is more concentrated, with 131 holdings and a heavier tilt toward healthcare (26%), followed by industrials (18%) and financial services (16%). Its largest positions—ACM Research Inc (NASDAQ:ACMR), PTC Therapeutics Inc (NASDAQ:PTCT), and Progyny Inc (NASDAQ:PGNY)—make up a higher share of assets than ISCG’s leaders, reflecting a more focused portfolio. Neither fund layers on leverage, currency hedging, or other structural quirks.

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What This Means For Investors

For investors that are seeking exposure to the small cap sector, iShares Morningstar Small-Cap Growth ETF (ISCG) and S&P SmallCap 600 Pure Growth ETF (RZG) are two funds worth considering.

To begin, let’s note the similarities in these funds. Both aim to capture the returns generated by small cap growth stocks. Both funds have underperformed the S&P 500 over the last five years. Lastly, both have very similar risk profiles and have experienced nearly identical max drawdowns during market corrections.

As for differences, ISCG has a much lower expense ratio (0.06% vs. 0.35%). In addition, ISCG is a larger fund, with $887 million in AUM compared to only $110 million. That could make a difference, as ISCG’s larger AUM will result in greater liquidity for those buying and selling shares. ISCG also generates more income for investors, with a dividend yield of 0.6%, compared to only 0.3% for RZG.

As for RZG, it has a better performance history. Over the last five years, the fund has generated a total return of 20%, while ISCG has only generated a total return of 12%. Both funds have significantly lagged the S&P 500.

In summary, both funds have some benefits. ISCG has lower fees, greater liquidity, and a higher dividend. RZG, meanwhile, boasts the better track record in terms of pure performance. Investors targeting the small cap sector could safely choose either fund depending on their own goals and priorities.

Glossary

ETF: Exchange-traded fund that holds a basket of securities and trades on an exchange like a stock.
Expense ratio: Annual fund operating costs expressed as a percentage of the fund's average assets.
Diversification: Spreading investments across many securities or sectors to reduce the impact of any single holding.
Small-cap: Companies with relatively low stock market value, typically a few hundred million to a few billion dollars.
Growth stocks: Companies expected to grow earnings or revenue faster than the overall market, often reinvesting profits.
Dividend yield: Annual dividends per share divided by the share price, showing income return as a percentage.
Beta: Measure of a fund's volatility compared with the overall market, usually the S&P 500.
AUM: Assets under management; the total market value of all assets held in a fund.
Max drawdown: The largest peak-to-trough decline in value over a specific period, showing worst historical loss.
Total return: Investment performance including price changes plus all dividends and distributions, assuming reinvestment.
Sector mix: The breakdown of a fund's holdings by industry categories, such as technology or healthcare.
Leverage: Using borrowed money or derivatives to amplify investment exposure, which can increase both gains and losses.

Jake Lerch has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kratos Defense & Security Solutions and Progyny. The Motley Fool recommends Lumentum. The Motley Fool has a disclosure policy.