IWO vs. MGK: How Small-Cap Diversification Compares to Mega-Cap Growth
Key Points
IWO carries a higher expense ratio but offers broader small-cap growth exposure than MGK.
IWO has experienced a deeper five-year drawdown with a higher beta.
MGK focuses on mega-cap tech while IWO tilts toward healthcare, technology, and industrials.
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The Vanguard Mega Cap Growth ETF (NYSEMKT:MGK) and the iShares Russell 2000 Growth ETF (NYSEMKT:IWO) both track U.S. growth stocks, but their approaches diverge: MGK concentrates on the nation’s largest, fastest-growing companies, while IWO targets growth names from the small-cap end of the market.
This comparison breaks down the two funds across cost, performance, risk, and portfolio construction to help investors decide which may best fit their strategy.
Snapshot (cost & size)
| Metric | MGK | IWO |
|---|---|---|
| Issuer | Vanguard | iShares |
| Expense ratio | 0.07% | 0.24% |
| 1-yr return (as of Jan. 25, 2026) | 15.25% | 15.35% |
| Dividend yield | 0.35% | 0.56% |
| Beta (5Y monthly) | 1.20 | 1.45 |
| AUM | $32 billion | $13 billion |
Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.
IWO charges a noticeably higher expense ratio than MGK, though IWO’s yield edges slightly higher for those seeking a bit more income from a growth ETF.
Performance & risk comparison
| Metric | MGK | IWO |
|---|---|---|
| Max drawdown (5 y) | -36.02% | -42.02% |
| Growth of $1,000 over 5 years | $1,954 | $1,097 |
What's inside
IWO delivers exposure to over 1,000 small-cap U.S. growth stocks, with a sector tilt toward healthcare (making up 26% of assets), technology (23%), and industrials (20%).
Its largest positions include Bloom Energy, Credo Technology Group, and Kratos Defense & Security Solutions, and each represents less than 2% of the portfolio. Launched over 25 years ago, IWO may appeal to investors looking for long-term access to innovative smaller companies.
MGK, by contrast, is built around mega-cap growth. It contains only 60 stocks, with technology making up 55% of the fund. Its top holdings — Nvidia, Apple, and Microsoft — dominate the portfolio, resulting in a more concentrated bet on the largest and most established growth names in the U.S. market.
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What this means for investors
MGK and IWO take drastically different approaches to capturing the growth sector of the market. MGK focuses exclusively on mega-cap stocks, while IWO targets small-cap companies.
This key difference results in significantly different risk profiles and performances. Small-cap stocks have plenty of growth potential, but they also tend to be more volatile. IWO has a higher beta and more severe max drawdown, suggesting more significant price fluctuations than MGK.
Despite small-cap stocks’ growth potential, MGK’s mega-cap focus has resulted in higher five-year total returns. That’s likely at least partly due to MGK’s top three holdings — Nvidia, Apple, and Microsoft — experiencing explosive growth over the last few years.
The two funds also differ in their sector allocations and diversification. IWO holds over 1,000 stocks, while MGK contains just 60. MGK is also much more tilted toward technology, with its top three holdings combined making up more than 35% of the fund. Meanwhile, all of IWO’s holdings each represent less than 2% of total assets.
Both funds can be smart buys, but the right one for you will depend on your goals. IWO has been more volatile in recent years, but it offers far more diversification with less of a tilt toward tech. MGK is hyper-focused on a small selection of industry leaders, which can be both a risk and an advantage, depending on how the market is faring.
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bloom Energy, Kratos Defense & Security Solutions, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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