Vanguard’s MGK vs. iShares’ IWO

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The iShares Russell 2000 Growth ETF (IWO) and Vanguard Mega Cap Growth ETF (MGK) both focus on stocks designed to deliver growth, but MGK has performed well of late thanks to the rise of artificial intelligence. Two of its biggest holdings, Nvidia and Microsoft, have benefited greatly from the AI market’s rapid expansion.

This boon also means MGK is vulnerable should the current AI expansion start to slow down. With over 70% of the fund’s holdings in tech, MGK lacks the diversification that IWO provides, and that can lead to poor performance if technology stocks undergo a decline. However, MGK’s larger AUM gives it more liquidity than IWO.

IWO is far more diversified, which cushions it from a downturn in a particular sector. But because the fund targets small-cap stocks, it possesses greater risk than MGK. This can be seen in its higher max drawdown compared to MGK.

The decision to invest in IWO or MGK comes down to whether an investor prefers MGK’s concentration in a handful of mega-cap tech stocks and far lower expense ratio, or IWO’s more volatile small-cap approach but greater diversification.

Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Mega-cap: Companies with extremely large market capitalizations, typically over $200 billion.
Small-cap: Companies with relatively small market capitalizations, generally between $300 million and $2 billion.
Dividend yield: Annual dividends paid by a fund or stock, expressed as a percentage of its current price.
Beta: A measure of an investment’s volatility compared to the overall market, usually the S&P 500.
AUM (Assets Under Management): The total market value of assets managed by a fund or investment company.
Max drawdown: The largest percentage drop from a fund’s peak value to its lowest point over a specific period.
Sector exposure: The proportion of a fund’s assets invested in particular industry sectors, such as technology or healthcare.
Portfolio concentration: The degree to which a fund’s assets are allocated to a small number of holdings.
Growth stock: A stock expected to grow earnings or revenue faster than the overall market.
Diversification: The investment strategy of spreading assets across various holdings to reduce risk.

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Robert Izquierdo has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Better Growth ETF: Vanguard’s MGK vs. iShares’ IWO was originally published by The Motley Fool