QQQ vs. IWM: Is Large-Cap Growth or Small-Cap Diversification the Better Choice for Investors?
Key Points
QQQ provides concentrated exposure to large-cap growth stocks, while IWM offers broad diversification across the small-cap market.
IWM has a slightly higher expense ratio but offers a significantly higher dividend yield than QQQ.
Total returns for QQQ have significantly outpaced IWM over the last five years.
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The Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) and the iShares Russell 2000 ETF (NYSEMKT:IWM) are both popular funds with plenty of growth potential, but they take starkly different approaches.
Choosing between these two popular funds involves balancing the high-octane growth of tech giants against the diverse potential of smaller companies. Here’s how the two compare on the most important factors for investors.
Snapshot (cost & size)
| Metric | QQQ | IWM |
|---|---|---|
| Issuer | Invesco | iShares |
| Expense ratio | 0.18% | 0.19% |
| 1-yr return (as of May 7, 2026) | 45.22% | 47.32% |
| Dividend yield | 0.42% | 0.91% |
| Beta (5Y monthly) | 1.18 | 1.30 |
| Assets under management (AUM) | $440.3 billion | $76.9 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.
The expense ratios for these funds are nearly identical, making both highly cost-efficient choices. However, IWM offers a significantly higher payout, providing more than double the dividend yield of the tech-heavy Invesco fund.
Performance & risk comparison
| Metric | QQQ | IWM |
|---|---|---|
| Max drawdown (5 yr) | -35.12% | -31.91% |
| Growth of $1,000 over 5 years (total return) | $2,163 | $1,370 |
What's inside
IWM tracks small-cap U.S. equities, holding a massive portfolio of nearly 2,000 stocks. Its sector allocation is well distributed, with industrials as its top sector, accounting for roughly 20% of assets, followed by technology and healthcare. Its largest positions include Bloom Energy, Credo Technology Group, and Sterling Infrastructure. This fund was launched in 2000 and has a trailing-12-month dividend of $2.54 per share.
In contrast, QQQ is far more concentrated. It holds only 102 stocks, with around 54% of assets allocated to the technology sector. Its top holdings include Nvidia, Apple, and Microsoft. This fund was launched in 1999 and paid $2.81 per share over the trailing 12 months.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
Both QQQ and IWM have the potential for above-average growth, but they may appeal to different types of investors.
QQQ is heavily focused on large-cap tech, and it’s also narrower and less diversified. Tech stocks make up more than half of its portfolio, and its top three holdings account for nearly 21% of assets.
IWM offers much broader exposure to the small-cap segment of the market, with around 20 times as many holdings as QQQ. Its top three stocks combined make up less than 4% of assets, making it far less top-heavy.
Each fund carries higher-than-average risk, but for different reasons. Small-cap stocks tend to be more volatile than their larger counterparts, but tech stocks are also often hit hard during market downturns. QQQ and IWM have experienced similar max drawdowns over the last five years, suggesting comparable risk profiles.
QQQ has significantly outperformed IWM over five years, likely at least in part due to Nvidia and similar tech stocks experiencing staggering growth in recent years. But small-cap stocks also have plenty of growth potential, and IWM could be poised for substantial returns if any of its holdings become superstar performers.
Both ETFs can be smart investments. QQQ can be a better buy for investors seeking more targeted access to large-cap tech stocks, while IWM is a good option for those looking for diversified exposure to the broader small-cap market.
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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, Microsoft, Nvidia, and Sterling Infrastructure. The Motley Fool has a disclosure policy.
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