IWO vs. VONG: How Does A Small Cap Growth Compare Against A Large Cap Growth Fund

Both the Vanguard Russell 1000 Growth ETF (NASDAQ:VONG) and iShares Russell 2000 Growth ETF (NYSEMKT:IWO) aim to capture U.S. growth stocks, but their approaches diverge sharply: VONG tracks large, established names from the Russell 1000 Growth Index, whereas IWO follows the Russell 2000 Growth Index, focusing on smaller, faster-growing firms. This comparison explores their costs, performance, risk, and underlying holdings to help investors weigh which may fit their portfolio goals.

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.

IWO comes with a higher expense ratio, making VONG the more affordable choice for cost-conscious investors. However, both funds currently offer the same dividend yield, so the main difference lies in ongoing fees rather than income payout.

Performance & risk comparison

What's inside

Based on the Russell 2000, IWO tracks small-cap growth stocks, splitting its 1,102 holdings with a balanced approach, having even sector allocation across the healthcare, industrials, and technology sectors. Its top three positions are Bloom Energy Corp. (NYSE:BE), Credo Technology Group Holding Ltd. (NASDAQ:CRDO), and Kratos Defense & Security Solutions (NASDAQ:KTOS), with no stock accounting forup more than 2% of total assets. The fund has consistently focused on small-cap stocks for over 25 years.

Launched 10 years after IWO, VONG, in contrast, is dominated by large-cap companies, leaning more towards the tech sector. Its top holdings include NVIDIA (NASDAQ:NVDA), Apple(NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT). All three companies make up more than 30% of the fund’s total weight.

What this means for investors

When investing in growth ETFs like those mentioned, it’s important to understand the potential for abnormal volatility. Small-cap stocks are more prone to large price swings because companies may either generate abnormal deficits/revenue that can spike returns, or lose more money during economic uncertainty, which can drop prices. Thus, with IWO’s portfolio full of small-cap companies, the ETF’s price can fluctuate dramatically at times.

With VONG, a heavy reliance on tech stocks can backfire if the sector experiences a market downturn, which is unlikely in the long term for the top tech firms but still possible. Also, with the top three companies in the fund’s holdings having substantially more weight than the rest, if one of those companies experiences a catastrophic event, investors may very well see that reflected within the fund’s performance.

Regardless, VONG is a solid option for tech exposure, but for a more balanced investment, IWO is a better option.

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

Adé Hennis has positions in Apple and Nvidia. The Motley Fool has positions in and recommends Apple, Bloom Energy, Kratos Defense & Security Solutions, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.