Both the Vanguard Growth ETF (VUG +0.64%) and the iShares Russell Top 200 Growth ETF (IWY +0.55%) aim to give investors exposure to large-cap U.S. growth stocks, but they do so by tracking different indexes and using distinct portfolio construction methods.

This analysis examines their cost structures, recent performance, risk profiles, and portfolio characteristics to help investors weigh which fund may appeal more for their needs.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

IWY carries a higher expense ratio than VUG, making VUG the more affordable choice for cost-conscious investors. VUG also offers a slightly higher yield, boasting greater passive income potential

Performance & risk comparison

What's inside

IWY tracks large-cap U.S. growth stocks with a portfolio of 110 holdings. Around 55% of assets are allocated to the technology sector, with 13% toward communication services and 11% to consumer cyclical. Its largest positions are Nvidia, Apple, and Microsoft. The fund has a 16-year track record and no notable structural quirks.

VUG, by contrast, holds 160 stocks and provides exposure that is similarly concentrated in technology (51%), with communication services and consumer cyclical making up 15% and 14%, respectively. Its top holdings match IWY's, but each stock makes up a slightly smaller portion of the portfolio compared to IWY.

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

What this means for investors

IWY and VUG are similar in many ways on the surface, but they offer subtle differences that could make a difference for investors.

IWY is narrower, with fewer holdings and a greater emphasis on the tech industry. While the two funds share the same top three stocks, these holdings make up around 38% of the portfolio for IWY compared to 32% for VUG. This is a subtle difference, but it could have an impact if Nvidia, Microsoft, and Apple see significant price swings either positively or negatively.

The two funds have seen similar performance in recent years, and with comparable max drawdowns, they've also experienced roughly the same levels of volatility.

The other main difference between them, then, is their fee structure. VUG boasts a lower expense ratio of 0.04%, charging $4 per year in fees for every $10,000 invested. IWY's expense ratio is 0.20%, resulting in fees of $20 per year for every $10,000. While it may seem subtle, IWY's five-times higher fee can add up if you have hundreds of thousands of dollars invested.

Glossary

ETF: Exchange-traded fund that holds a basket of securities and trades on an exchange like a stock.
Expense ratio: Annual fund operating costs expressed as a percentage of the fund's average assets.
Dividend yield: Annual dividends paid by a fund divided by its current share price, shown as a percentage.
AUM: Assets under management; the total market value of all assets a fund manages.
Index: A rules-based benchmark that tracks the performance of a specific segment of the market.
Portfolio construction: The process and rules a fund uses to select, weight, and manage its holdings.
Sector exposure: The percentage of a fund's assets invested in specific industries, such as technology or healthcare.
Beta: A measure of how volatile an investment is compared with the overall stock market.
Max drawdown: The largest peak-to-trough decline in an investment's value over a specified period.
Total return: Investment performance including price changes plus dividends, assuming dividends are reinvested.
Growth stocks: Companies expected to grow earnings or revenues faster than the overall market, often reinvesting profits.
Large-cap: Companies with relatively large market values, typically tens or hundreds of billions of dollars.