Growth ETF Showdown: Vanguard Morningstar Growth ETF vs. iShares Small-Cap 600 Growth ETF

iShares S&P Small-Cap 600 Growth ETF (NASDAQ:IJT) and Vanguard Morningstar Growth ETF (NYSEMKT:VUG) offer divergent paths to growth, contrasting small-cap cyclicals against a heavy concentration of megacap technology leaders.

These two funds target growth but operate at opposite ends of the market capitalization spectrum. The iShares fund tracks small-cap companies, whereas the Vanguard fund builds its massive portfolio around the largest and most dominant growth-oriented enterprises in the U.S. equity market.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Cost-conscious investors may find the Vanguard fund more appealing due to its ultra-low 0.03% expense ratio. The iShares fund, while more expensive at 0.18%, currently provides a slightly higher distribution payout to its shareholders.

Performance & risk comparison

What's inside

Vanguard Morningstar Growth ETF is heavily weighted toward the technology sector, which comprises 69% of the portfolio, followed by communication services at 15%, and consumer cyclical names at 12%. Its largest positions include Nvidia at 12.81%, Apple at 12.60%, and Microsoft at 9.59% among its 147 total holdings. It was launched in 2004. Vanguard Morningstar Growth ETF has paid $0.34 per share over the trailing 12 months, which on its recent ~$88.90 share price works out to a 0.4% yield.

iShares S&P Small-Cap 600 Growth ETF spreads its assets more broadly across 377 holdings, with industrials at 20.5%, financials at 16.3%, and healthcare at 15% making up its primary sectors. Top holdings include Corcept Therapeutics at 1.23%, Brinker International at 1.13%, and Viasat at 1.05%. It was launched in 2000. iShares S&P Small-Cap 600 Growth ETF has paid $1.21 per share over the trailing 12 months, which on its recent ~$173.16 share price works out to a 0.7% yield.

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

Which looks like the better buy

Comparing VUG and IJT pits megacap tech dominance against diversified small-cap exposure. Both have their pros and cons, and the better buy for you likely comes down to your risk tolerance, investment goals, and what you already hold in your portfolio. VUG is a $372 billion behemoth and gives you exposure to the largest growth names in the market. Right now, that means tech giants Nvidia, Apple, and Microsoft. Those are pretty safe bets as far as the market goes, but while they’re still considered growth stocks, their upside from here may be limited due to their massive size and more mature businesses.

On the other end of the growth ETF spectrum is IJT, which holds growth stocks with market caps between $450 million and $2.1 billion. Investing here means potentially getting in on the ground floor of the next Nvidia, Apple, or Microsoft. But investing in small-cap stocks brings additional risk, as some businesses will face financial pressures and other hurdles that prevent them from succeeding. IJT spreads out that risk by holding more than 2.5 times the number of stocks VUG holds. It's performed better than VUG over the last year as AI spending concerns and an uncertain interest rate environment have gripped the market, but it's underperformed VUG over the longer term.

Neither fund is going to appeal to investors seeking dividend income, but VUG may stand out for its lower expense ratio. If you're looking to build a diversified portfolio, it may be worth taking a position in both of these ETFs to capture a more complete picture of the growth stock landscape.

Sarah Sidlow has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Corcept Therapeutics, Microsoft, Nvidia, and Vanguard Morningstar Growth ETF. The Motley Fool has a disclosure policy.