Small-Cap vs. Mega-Cap: Is IWO or MGK the Better Buy Right Now?

Core Viewpoint - The Vanguard Mega Cap Growth ETF (MGK) and the iShares Russell 2000 Growth ETF (IWO) represent two distinct approaches to investing in U.S. growth stocks, with MGK focusing on large-cap stocks and IWO on small-cap stocks, leading to different risk and diversification profiles [1] Cost & Size - MGK has an expense ratio of 0.05% and assets under management (AUM) of $32 billion, while IWO has a higher expense ratio of 0.24% and AUM of $13 billion [2] - The one-year return for MGK is 12.81%, compared to IWO's 14.61%, and the dividend yield for MGK is 0.36%, while IWO offers a yield of 0.54% [2] - The beta over five years for MGK is 1.17, indicating lower volatility compared to IWO's beta of 1.43 [2] Performance & Risk Comparison - Over five years, MGK has a maximum drawdown of -36.02%, while IWO has a higher drawdown of -42.02% [3] - An investment of $1,000 in MGK would have grown to $1,846, whereas the same investment in IWO would have grown to $1,039 [3] Portfolio Composition - IWO tracks over 1,000 small-cap U.S. stocks, with significant allocations in healthcare (26%), technology (22%), and industrials (22%), providing broad diversification [4] - MGK is concentrated in 60 mega-cap stocks, with nearly 55% in technology and 17% in communication services, leading to less diversification [5] Investment Implications - MGK's narrow portfolio limits diversification but focuses on industry leaders, which may recover from volatility [6] - IWO offers greater variety but is subject to higher volatility due to its small-cap focus [7] - Historical performance shows IWO has greater volatility and a steeper max drawdown, but MGK has outperformed IWO over five years due to the growth of its top holdings [8] - Investors seeking diversification may prefer IWO, while those targeting mega-cap exposure might favor MGK [9]