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Comparing the Vanguard Mega Cap Growth ETF (NYSEMKT:MGK) and iShares Russell 2000 ETF (NYSEMKT:IWM) involves weighing the high-octane growth of tech giants against the diverse, more volatile landscape of small-cap companies.
Investors often choose between these funds to adjust their market-cap exposure. The Vanguard fund captures the top tier of growth leaders, while the iShares fund tracks the broader small-cap market. This comparison looks at how their costs, holdings, and risk profiles differ for long-term holders.
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. Dividend yield is the trailing-12-month distribution yield.
The Vanguard fund is more affordable, costing just $0.50 annually for every $1,000 invested compared to $1.90 for its counterpart. While both pay dividends, the Vanguard fund currently offers a lower payout with a trailing-12-month yield of 0.34% compared to 0.90% for the iShares fund.
Growth of $1,000 over 5 years (total return)
The iShares Russell 2000 ETF provides exposure to 1,924 small-cap stocks. Its portfolio is led by healthcare at 18%, industrials at 17%, and financial services at 16%. Its largest positions include Bloom Energy (NYSE:BE) at 1.93%, Credo Technology (NASDAQ:CRDO) at 0.94%, and Sterling Infrastructure (NASDAQ:STRL) at 0.72%. This fund was launched in 2000, features no significant quirks, and has a trailing-12-month dividend of $2.54 per share.
In contrast, the Vanguard Mega Cap Growth ETF is more concentrated, holding 59 stocks. It tilts heavily toward technology at 68%, followed by consumer discretionay at 16% and industrials at 6%. Top holdings include NVIDIA (NASDAQ:NVDA) at 13.73%, Apple (NASDAQ:AAPL) at 12.58%, and Microsoft (NASDAQ:MSFT) at 9.00%. Launched in 2007, it has no major quirks and a trailing-12-month dividend of $1.18 per share.
For more guidance on ETF investing, check out the full guide at this link.
The iShares Russell 2000 ETF (IWM) and Vanguard Mega Cap Growth ETF (MGK) offer different ways for investors to pursue growth-oriented stocks. The choice between these two comes down to which strategy best meets your investing goals.
MGK’s large-cap focus gives you access to the biggest names in the tech sector for a very low expense ratio. Thanks to artificial intelligence, technology stocks have soared, helping MGK deliver strong recent growth. However, its small set of 59 stocks provides little diversification, so whenever the tech industry experiences a downturn, the fund’s performance will suffer, as demonstrated by its higher max drawdown. MGK is for investors who want to concentrate on companies with large market caps and are comfortable with the risks.
IWM takes the opposite approach to growth, targeting a wide range of small companies, which offer the potential for rapid business expansion. The ETF’s broad holdings protect it from a decline in any given sector or stocks, and its larger AUM delivers good liquidity. The downside is its much higher expense ratio, and small-cap stocks inherently possess greater volatility than the stability afforded by large caps. IWM is good for investors who want to add small-cap exposure to round out their portfolios.
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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 Sterling Infrastructure. The Motley Fool has a disclosure policy.
Which Is the Better Growth ETF, the Vanguard Mega Cap Growth ETF or iShares Russell 2000 ETF? was originally published by The Motley Fool