IWO vs. MGK: How Small-Cap Diversification Compares to Mega-Cap Growth

Meta description: In this detailed 2026 breakdown of IWO vs. MGK, learn how small-cap growth diversification stacks up against mega-cap growth concentration, including fees, risk, sector exposure, drawdowns, and who each ETF may fit.

Investors often say they want “growth,” but growth can come in very different flavors. Two popular exchange-traded funds (ETFs) that aim for growth are the Vanguard Mega Cap Growth ETF (MGK) and the iShares Russell 2000 Growth ETF (IWO). On the surface, they sound similar—both target U.S. growth companies. But under the hood, they behave differently because they invest in very different parts of the market.

This rewritten report explains what the Motley Fool comparison is really saying in plain English: MGK is a concentrated bet on the biggest, most dominant growth companies, while IWO is a broad basket of smaller growth companies with more diversification—and usually more volatility.

Quick Snapshot: Fees, Size, Returns, Yield, and Volatility

If you like seeing the “at-a-glance” numbers first, here are the key metrics referenced in the comparison:

Metric	MGK	IWO
Issuer	Vanguard	iShares
Expense ratio	0.07%	0.24%
1-year return (as of Jan. 25, 2026)	15.25%	15.35%
Dividend yield	0.35%	0.56%
Beta (5-year monthly)	1.20	1.45
Assets under management (AUM)	$32 billion	$13 billion

In simple terms: MGK is cheaper to own each year, while IWO has a slightly higher yield and higher “bounce” (volatility), shown by the higher beta.

What Each ETF Actually Holds (And Why It Matters)

MGK: Mega-cap growth—fewer stocks, bigger bets

MGK is built around mega-cap growth. That means it owns a relatively small group of very large companies that have strong growth traits. In the comparison, MGK is described as holding about 60 stocks. That’s not many for an ETF, and it tells you something important: MGK is designed to be concentrated.

Because it owns fewer stocks, each major holding matters a lot. The article highlights that MGK’s largest positions—Nvidia, Apple, and Microsoft—dominate the fund, and the top three combined account for more than 35% of the portfolio. That is a big deal. If those leaders soar, MGK can look amazing. If those leaders stumble, MGK can feel the impact fast.

MGK is also described as heavily tilted toward technology, with tech around 55% of the fund. That makes MGK a strong “tech-led growth” play.

IWO: Small-cap growth—many stocks, wider spread

IWO takes the opposite approach. Instead of focusing on the biggest companies, it targets small-cap U.S. growth stocks. In the comparison, IWO is described as holding over 1,000 stocks. That’s broad diversification.

Here’s the key difference: the biggest holdings inside IWO don’t dominate the way they do in MGK. The article notes that each of IWO’s holdings is less than 2% of the portfolio, including its largest positions such as Bloom Energy, Credo Technology Group, and Kratos Defense & Security Solutions.

IWO also has a different sector mix. Instead of being overwhelmingly tech-heavy like MGK, IWO leans toward healthcare (26%), technology (23%), and industrials (20%). That spread can help reduce dependence on a single sector, but it also means performance drivers are more mixed.

Cost Comparison: Why Expense Ratios Matter Over Time

One of the most practical differences between these ETFs is cost. MGK’s expense ratio is 0.07%, while IWO’s is 0.24%.

That gap may look small, but it can add up over long periods. Think of an expense ratio like a small “maintenance fee” you pay each year. Over decades, lower fees often give investors a quiet advantage—especially when two funds are both trying to capture a similar “growth” theme.

Still, cost is not everything. The reason some investors accept higher fees is that they want a specific kind of exposure. In this case, IWO’s higher cost comes with access to a very wide basket of small-cap growth stocks, which you can’t get from MGK.

Performance: Similar 1-Year Returns, Very Different 5-Year Outcomes

According to the comparison, the two ETFs had very similar 1-year total returns as of Jan. 25, 2026: MGK at 15.25% and IWO at 15.35%.

But over five years, they didn’t look alike at all. The article shows “growth of $1,000 over 5 years” as:

• MGK: $1,954
• IWO: $1,097

That’s a dramatic difference.

Why would a mega-cap growth ETF outperform a small-cap growth ETF over a five-year stretch? The comparison points to a straightforward explanation: MGK’s largest holdings—especially big tech leaders like Nvidia, Apple, and Microsoft—experienced explosive growth during that period, pulling the entire fund higher.

Small-cap stocks can grow fast, but they can also struggle for long periods, especially if the economy is uncertain, interest rates are high, or investors prefer “safer” giants. In those environments, mega-cap leaders can keep winning simply because they have scale, cash flow, and strong demand for their products.

Risk: Beta and Drawdowns Show the Stress Test

Beta: Which one swings more?

The article lists MGK’s beta as 1.20 and IWO’s beta as 1.45.

Beta is a common measure of how much a fund tends to move compared to a benchmark like the S&P 500. A beta above 1.0 suggests bigger swings than the market. So, based on these figures, IWO has historically been the more “bouncy” ride.

Max drawdown: How bad did it get?

The comparison also includes maximum drawdown over five years:

• MGK max drawdown: -36.02%
• IWO max drawdown: -42.02%

Max drawdown shows the worst peak-to-trough decline in that period. In plain terms, it’s a “how scary did it get?” number. IWO’s deeper drawdown suggests that small-cap growth stocks experienced sharper drops than mega-cap growth in that timeframe.

That doesn’t automatically make IWO “bad.” It just means it behaves like many small-cap baskets do: higher upside potential in some cycles, but deeper dips when the market is stressed. Investors need to be emotionally and financially ready for that kind of volatility.

Diversification vs. Concentration: The Real Debate

The heart of the story is not just about returns. It’s about how you want to own growth.

IWO’s diversification advantage

IWO’s portfolio has over 1,000 holdings, and each one is a small slice of the pie. That kind of structure can reduce “single-company risk.” If one company has a terrible year, it doesn’t usually sink the entire fund.

This is especially helpful in small caps, where individual companies can be more fragile. Many are still building their business model, competing aggressively, or depending on access to financing. Diversification helps prevent one blowup from becoming a disaster.

MGK’s concentration advantage (and risk)

MGK’s concentration is a double-edged sword. When a handful of dominant companies lead the market, MGK can deliver strong results—because it owns those leaders in meaningful size.

But concentration also means your returns can become closely tied to a few names and one main sector (technology). If the market rotates away from those leaders, or if valuations compress, MGK can slow down quickly.

So in a way, IWO is “many smaller bets,” while MGK is “fewer bigger bets.” Neither approach is automatically right or wrong—it depends on goals, timeline, and risk tolerance.

Sector Tilt: Why MGK Looks Like Tech, and IWO Looks More Mixed

Another major theme is sector composition. MGK is heavily tilted toward technology (about 55% in the comparison), while IWO’s biggest sector is healthcare (26%), followed by tech (23%) and industrials (20%).

This matters because sectors behave differently in different economic conditions:

• Technology often thrives when growth expectations are high and innovation is rewarded.
• Healthcare can be more defensive because demand for healthcare products and services can remain steady even when the economy slows.
• Industrials can benefit when manufacturing and infrastructure activity rises, but can also be sensitive to economic cycles.

In other words, MGK may be more dependent on the tech cycle, while IWO is somewhat more balanced across multiple growth-oriented sectors.

Income: Which ETF Pays More?

Neither of these ETFs is designed mainly for dividend income. Still, yields can matter to some investors, especially those who like a small cash return while holding a growth strategy.

In the comparison, IWO’s dividend yield is 0.56% versus MGK’s 0.35%.

That’s not a huge difference in dollars, but it does suggest IWO provides slightly more income. The trade-off, of course, is that IWO costs more to own each year and has historically been more volatile.

Who Might Prefer IWO?

IWO may appeal to investors who want:

• Small-cap growth exposure instead of mega-cap giants.
• Broad diversification across more than 1,000 companies.
• A portfolio that is less dominated by a few tech leaders.
• Potentially higher long-term upside if small caps enter a strong cycle.

It can also fit investors who already own a lot of large-cap or S&P 500 exposure and want to add a different “engine” to their portfolio—one that focuses on smaller companies.

Who Might Prefer MGK?

MGK may appeal to investors who want:

• Low cost (0.07% expense ratio).
• Access to mega-cap growth leaders that have dominated recent markets.
• A simpler “big winners” approach, even if it is more concentrated.
• Historically strong five-year performance compared with small-cap growth in the referenced period.

MGK can also make sense for investors who believe the largest companies will keep leading because of massive budgets, global distribution, and the ability to invest through downturns.

How to Think About Using Them Together

Some investors don’t want to choose only one. They may use both to blend styles:

• MGK as a “core growth leader” fund, anchored by mega-cap innovators.
• IWO as a “satellite” position to add small-cap growth diversification and exposure to emerging companies.

This approach can reduce dependence on a single market segment. If mega-cap tech goes quiet for a while, small-cap growth might still provide opportunities—though it can be volatile.

Practical Checklist Before Buying Any Growth ETF

Before choosing between these funds, consider asking yourself:

• Time horizon: Can you stay invested for many years, even through rough drawdowns?
• Risk tolerance: Can you handle deeper drops like the drawdown shown for IWO?
• Portfolio balance: Are you already heavy in big tech or large-cap stocks?
• Fees: Do you value the lower cost of MGK, or do you want the different exposure IWO offers?
• Sector preference: Do you want tech-heavy growth (MGK) or a more mixed sector tilt (IWO)?

Important note: This article is educational and is not personal financial advice. ETFs can go down as well as up, and past performance does not guarantee future results.

External Resources (Official Fund Pages)

If you want to double-check holdings, fees, and official fund documents, these pages can help:

• Vanguard Mega Cap Growth ETF (MGK) — Vanguard official profile

• iShares Russell 2000 Growth ETF (IWO) — iShares official product page

FAQs

1) What is the biggest difference between IWO and MGK?

The biggest difference is market segment. MGK focuses on mega-cap growth with far fewer holdings, while IWO focuses on small-cap growth with over 1,000 holdings.

2) Which ETF is cheaper to own?

MGK is cheaper, with an expense ratio of 0.07%, compared to IWO’s 0.24%.

3) Which one is more diversified?

IWO is much more diversified because it holds over 1,000 stocks, while MGK holds about 60.

4) Which one is more volatile?

IWO is more volatile in the comparison, with a higher beta (1.45) than MGK (1.20) and a deeper five-year max drawdown.

5) Why did MGK show stronger five-year growth in the comparison?

The comparison suggests MGK benefited from strong performance in its top mega-cap holdings, including major tech leaders like Nvidia, Apple, and Microsoft.

6) Is IWO better for investors who worry about “too much tech”?

It can be, because IWO’s sector mix includes large exposure to healthcare and industrials, and it’s not as dominated by a few tech mega-caps as MGK is.

Conclusion: Picking the Right Kind of Growth

The real decision is not “which ETF is good,” but which kind of growth you want to own. MGK offers low-cost access to a concentrated set of mega-cap growth leaders, especially tech-heavy names. IWO offers broad exposure to smaller growth companies, with deeper diversification and typically higher volatility.

If you prefer stability and lower fees, MGK may fit better. If you want diversification across many small-cap growth companies and you can handle bigger ups and downs, IWO may be worth a look. Many investors even combine both to balance concentration with diversification.

Either way, staying consistent, keeping costs in mind, and matching your ETF choice to your risk tolerance is often the most “grown-up” move—because the best portfolio is the one you can stick with when markets get noisy.

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