How Small-Cap Diversification Compares to Large-Cap Growth

The Vanguard S&P 500 Growth ETF (NYSEMKT:VOOG) and the iShares Russell 2000 Growth ETF (NYSEMKT:IWO) each intention to seize development shares, however their approaches and danger profiles diverge.

VOOG tracks massive, established U.S. development firms within the S&P 500, whereas IWO covers a wider basket of small-cap development names. That makes this comparability related for buyers weighing the soundness of large-caps towards the potential of small-caps.

Beta measures worth volatility relative to the S&P 500; beta is calculated from five-year month-to-month returns. The 1-yr return represents complete return over the trailing 12 months.

IWO fees a a lot steeper expense ratio than VOOG, which might make VOOG extra inexpensive over the long run. However, IWO affords a touch larger dividend yield, interesting to these searching for some revenue alongside development.

VOOG and IWO delivered practically similar one-year returns as of late March 2026, however the trip has been bumpier for IWO. Over 5 years, IWO skilled a sharper most drawdown and decrease cumulative development, highlighting the upper danger and volatility of small-cap development shares in contrast to large-cap friends.

IWO tracks over 1,100 small-cap development firms, making it one of the diversified U.S. development ETFs when it comes to variety of holdings. The fund leans heaviest into healthcare (making up 24% of property), adopted by industrials and expertise. Its high holdings are Bloom Energy, Fabrinet, and Credo Technology Group, none of which individually dominate the portfolio.

VOOG, in distinction, focuses on the expansion section of the S&P 500, with a a lot bigger tilt towards expertise (47%) and communication providers. It holds simply 140 shares, and its portfolio is extra concentrated on the high — with Nvidia, Microsoft, and Apple making up a large portion of property.

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Each of those ETFs has a definite benefit. IWO shines with its intensive diversification, whereas VOOG’s large-cap focus has helped it earn above-average returns over time.

Generally, small-cap shares have higher development potential than their extra established friends. Because VOOG is dominated by tech shares, nevertheless, it’s outperformed IWO over the past 5 years — as huge names like Nvidia have earned explosive returns.

VOOG’s reliance on mega-cap tech will also be a disadvantage for some buyers, nevertheless. Nearly half of its portfolio is devoted to the tech sector, and its high three holdings alone make up over 30% of property. If the tech trade faces volatility sooner or later, VOOG may very well be hit more durable than IWO.

Although small-caps have a tendency to be extra unstable than large-caps, IWO affords immense diversification. Its high three shares collectively account for lower than 5% of property, and tech solely makes up round 22% of the fund. That will help scale back its volatility throughout a tech drawdown.

Overall, VOOG is usually a good selection for buyers searching for mega-cap tech publicity with larger long-term incomes potential, whereas IWO could greatest serve those that desire added diversification with much less of a tilt towards tech shares.

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Katie Brockman has positions in Vanguard Admiral Funds – Vanguard S&P 500 Growth ETF. The Motley Fool has positions in and recommends Apple, Bloom Energy, Microsoft, and Nvidia and is brief shares of Apple. The Motley Fool has a disclosure policy.

IWO vs. VOOG: How Small-Cap Diversification Compares to Large-Cap Growth was initially printed by The Motley Fool