IWO: Tracking The Hot-And-Cold Small Cap Growth Asset Class (IWO)

Core Insights - Small-cap growth stocks, while less known, can offer significant long-term investment potential and have historically experienced both growth and bear markets [1][2] Group 1: Overview of IWO - The iShares Russell 2000 Growth ETF (IWO) represents small-cap growth stocks, which are generally defined as companies with market capitalizations between $2 billion and $5 billion [2][3] - IWO is structured from the Russell 2000 index, which is the longest-running benchmark for smaller stocks, and typically holds around 900-1100 stocks at any given time [4][3] - As of October 10, 2025, IWO had 660 holdings, a 30-day SEC yield of 0.42%, and a P/E ratio of 28.09 [6][6] Group 2: Performance and Volatility - Small-cap growth stocks tend to have higher valuation ratios but also higher potential growth rates in earnings and revenue [7] - IWO has shown a wide range of performance, with annualized returns as high as 28% and as low as -8% on a rolling 5-year basis, averaging around 10% annual return since inception [16][16] - The ETF has experienced significant declines, losing more than half its value during market downturns such as the global financial crisis in 2008 and the COVID-19 pandemic [20][20] Group 3: Investment Characteristics - IWO is not designed for income-seeking investors, as it has never yielded close to 2% even in its lowest price states [14][14] - The ETF has a low expense ratio of 0.24%, which is typical for index ETFs but higher than that of larger-cap index ETFs due to the nature of small-cap stocks [21][22] - Historically, IWO outperformed the S&P 500 for about 15 years, but has lagged in recent years as larger companies have gained favor in the market [25][26] Group 4: Market Dynamics - Small-cap growth stocks are often targets for acquisition by larger companies, which can lead to price increases for the smaller stocks but may also result in their removal from the index [13][13] - The classification of stocks can change over time, with companies potentially shifting from growth to value categories as they mature [12][12] - IWO provides a diversified basket of approximately 1,000 small-cap growth stocks, appealing to investors who believe in the growth potential of smaller companies [28][28]