iShares S&P 500 ETF vs. Russell 2000 Growth: Is Large-Cap Stability or Small-Cap Growth the Better Buy?

Choosing between the iShares Russell 2000 Growth ETF (IWO +0.80%) and the iShares Core S&P 500 ETF (IVV +0.78%) involves weighing the high-growth potential of small-cap stocks against the lower costs and relative stability of the 500 largest U.S. companies.

Investors often use IVV as a core portfolio building block, while IWO may appeal to those seeking higher potential returns from smaller, more aggressive companies. Here’s how the two compare on the most important factors.

Snapshot (cost & size)

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.

IVV offers a much lower expense ratio, charging just 0.03% compared to IWO’s 0.24%. This means investors will pay $3 per year in fees for every $10,000 invested in IVV, or $24 per year for every $10,000 in IWO. IVV also offers a higher dividend yield, which could appeal to investors seeking passive income.

Performance & risk comparison

What’s inside

IVV concentrates on large-cap U.S. equities, holding just over 500 stocks. Technology makes up around 36% of assets, followed by financial services and communication services, and its largest positions include Nvidia, Apple, and Microsoft. The fund has a trailing-12-month dividend of $8.06 per share, and it carries no specific quirks.

In contrast, IWO focuses on smaller growth companies and holds over 1,000 stocks. Industrials, technology, and healthcare round out the top three sectors, each with allocations of around 23%. Its top holdings include Bloom Energy, Credo Technology Group, and Sterling Infrastructure. Over the trailing 12 months, it paid $1.51 per share in dividends. Like its large-cap counterpart, it lists no specific quirks.

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

What this means for investors

The primary difference between these two ETFs is their target market cap. IVV only contains large-cap stocks, while IWO focuses on small-cap stocks.

In general, small-cap stocks tend to be more volatile in the short term but offer more earning potential. IWO specifically targets small-cap growth stocks, which can lead to both increased volatility and higher returns over time.

IWO has both a higher beta and deeper max drawdown, suggesting more severe price fluctuations over the last five years. While it’s outperformed IVV in 12-month total returns, IVV has come out ahead over the last five years — likely due to tech giants’ staggering growth in that time.

IVV has an edge with its relative stability, offering exposure to 500 of the largest U.S. companies. Its lower expense ratio and higher dividend yield can also help investors save on fees while earning more passive income.

In short, for investors seeking access to large companies with relatively consistent growth, IVV’s exposure to the S&P 500 could be a selling point. On the other hand, if you’re looking to invest in smaller companies that could experience explosive growth over time, IWO’s small-cap focus could make it a strong choice.