Better ETF: iShares' Small-Cap IWO vs. Vanguard's Large-Cap VOO
Key Points
IWO charges a higher expense ratio than VOO and delivers a lower dividend yield.
IWO has outperformed VOO over the past year but experienced a much steeper maximum drawdown.
IWO is heavily weighted toward healthcare and small-cap growth, while VOO tracks large-cap technology and financials.
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The Vanguard S&P 500 ETF (NYSEMKT:VOO) and the iShares Russell 2000 Growth ETF (NYSEMKT:IWO) differ sharply in expense ratio, yield, and portfolio focus, with IWO leaning into small-cap growth stocks and higher risk, while VOO tracks large-cap U.S. equities at a lower cost.
Both funds aim to capture U.S. equity market growth, but VOO tracks the S&P 500’s large-cap companies, whereas IWO targets smaller, growth-oriented stocks in the Russell 2000. This comparison looks at cost, returns, risk, and portfolio construction to help clarify which ETF may appeal depending on investor goals.
Snapshot (cost & size)
| Metric | VOO | IWO |
|---|---|---|
| Issuer | Vanguard | IShares |
| Expense ratio | 0.03% | 0.24% |
| 1-yr return (as of 2026-02-27) | 17.3% | 22.6% |
| Dividend yield | 1.1% | 0.5% |
| Beta | 1.00 | 1.43 |
| AUM | $1.5 trillion | $13.3 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months.
IWO comes with a higher expense ratio, making VOO the more affordable option for long-term investors. VOO also provides a higher dividend yield, while IWO’s income payout is lower by comparison.
Performance & risk comparison
| Metric | VOO | IWO |
|---|---|---|
| Max drawdown (5 y) | -24.52% | -40.51% |
| Growth of $1,000 over 5 years | $1,762 | $1,046 |
What's inside
IWO focuses on small-cap U.S. stocks with growth characteristics, offering exposure to over 1,000 holdings. The fund’s sector mix is led by healthcare (25%), technology (22%), and industrials (22%), with top positions including Bloom Energy (NYSE:BE), Fabrinet (NYSE:FN), and Credo Technology (NASDAQ:CRDO). With a fund age of 25.6 years, IWO’s portfolio may appeal to investors seeking diversification beyond mega-cap names and who can tolerate greater volatility.
In contrast, VOO tracks the S&P 500, concentrating on large-cap U.S. companies with a technology tilt (34%), followed by financial services and communication services. Its largest positions are NVIDIA (NASDAQ:NVDA), Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT), reflecting the dominance of tech giants in the index. This blue-chip focus could appeal to those preferring stability and broad U.S. market exposure.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
Choosing between the Vanguard S&P 500 ETF (VOO) and the iShares Russell 2000 Growth ETF (IWO) depends primarily on your investment goals. That’s because these two funds target very different parts of the stock market to achieve their goals.
IWO focuses on small cap stocks to deliver strong growth. Its larger one-year return compared to VOO demonstrates this. The fund is also well diversified with more than 1,000 stocks. However, small cap companies are inherently more volatile, as seen by its far greater max drawdown and higher beta.
Because VOO focuses on the large-cap stocks of the S&P 500, it offers more stability and lower volatility. Its much bigger assets under management give it great liquidity. It also sports a low expense ratio and a solid dividend yield, which can appeal to income-oriented investors. But because it seeks to replicate the S&P 500, the fund’s performance is affected more by tech stocks, which have experienced greater volatility than other sectors. For instance, Nvidia’s beta exceeds two.
Ultimately, IWO is for aggressive investors prioritizing short-term returns in exchange for a higher expense ratio and volatility. VOO is for those who want a stable, long-term investment that they can buy and hold.
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Robert Izquierdo has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Bloom Energy, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
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