IWM vs. IWO: Small-Cap Showdown – Who Wins?

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Oh, here we go again. Another ETF comparison. IWM, the underdog with lower fees and a better dividend yield. IWO, the overachiever with a growth obsession. What’s next? A fund that’s both? Please.

So, they’re both in the same neighborhood but with different priorities. IWM’s like the general store, IWO’s the specialty shop. Which one you pick depends on if you want a little bit of everything or just the shiny stuff.

Snapshot (cost & size)

Metric IWO IWM
Issuer iShares iShares
Expense ratio 0.24% 0.19%
1-yr return (as of Dec. 13, 2025) 9.83% 8.92%
Dividend yield 0.65% 0.97%
Beta (5Y monthly) 1.40 1.30
AUM $13.2 billion $72.5 billion

IWM’s more affordable on fees with a lower expense ratio than IWO. It also offers a higher dividend yield, which may appeal to investors seeking additional income from their small-cap allocation. But let’s be real-0.97% is barely a tip. Still, it’s better than nothing.

Performance & risk comparison

Metric IWO IWM
Max drawdown (5 y) -42.02% -31.91%
Growth of $1,000 over 5 years $1,212 $1,334

Max drawdown? IWO’s -42%, IWM’s -31.91%. Oh, so IWO’s more volatile. But over five years, IWM turned $1k into $1,334, while IWO got $1,212. So, even with more risk, IWO didn’t do better. That’s frustrating. Like buying a lottery ticket and not winning. But hey, at least you tried.

What’s inside

IWM holds 1,951 stocks, spread across sectors. Healthcare, financials, industrials. Not bad, but it’s like a buffet where you have to eat everything. IWO, on the other hand, focuses on growth. Healthcare 25%, industrials 22%, tech 21%. So, it’s like a themed restaurant. You know what you’re getting. But with fewer options. And higher risk. It’s like choosing between a well-rounded meal and a fancy dish that might not hit the spot.

Its top holdings are Bloom Energy, Credo Technology Group, and Fabrinet, each making up less than 1% of the fund’s total assets. With over 25 years on the market and no notable quirks or complex overlays, IWM aims for broad, representative exposure to the small-cap universe. But let’s be honest-broad is just another word for “not exciting.”

IWO, by contrast, focuses on the growth segment of the Russell 2000, resulting in a more concentrated portfolio. Its top sectors include healthcare (25%), industrials (22%), and technology (21%). Its largest positions mirror IWM’s but at higher allocations, reflecting IWO’s narrower focus. Investors seeking pure growth exposure may find IWO’s sector tilt and higher volatility notable, but it comes with fewer holdings and a more concentrated risk profile. Sounds like a gamble. And I hate gambling.

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What this means for investors

IWO and IWM both offer access to small-cap stocks, but they differ in their goals and portfolio allocations. IWM’s the more diversified of the two, providing exposure to the entire small-cap market. It’s less focused on any particular industry or individual stock, which can help limit risk-especially during periods of volatility. But why limit risk when you could chase returns? That’s the question.

IWO, on the other hand, offers a more targeted approach, only containing stocks that have shown greater potential for growth. Its portfolio is around half the size of IWM’s, but it’s more heavily tilted toward a handful of industries. Diversification can be a double-edged sword in some cases. While more variety can help mitigate risk, it can also dilute returns-with lower-performing stocks sometimes dragging down the entire fund’s earning potential. Like a bad roommate.

IWO has earned slightly higher returns over the past year compared to IWM. However, it’s also seen a more significant max drawdown, indicating more severe price swings over the last few years. So, if you’re okay with a rollercoaster, IWO’s your ride. If not, stick with IWM. But let’s face it-both are just trying to survive the market’s mood swings.

Glossary

Expense ratio: The annual fee, as a percentage of assets, that an ETF or fund charges to cover operating costs. Because nothing says “I’m a professional” like charging 0.24% for the privilege.
Diversification: The practice of spreading investments across various assets or sectors to reduce risk. Or, as I call it, “not putting all your eggs in one basket… unless the basket is on fire.
Dividend yield: Annual dividends paid by an investment, expressed as a percentage of its current price. Because who doesn’t want a little extra cash?
Small-cap: Refers to companies with relatively small market capitalizations, typically between $300 million and $2 billion. Little guys with big dreams… or maybe just big risks.
Growth stock: A stock expected to grow earnings or revenue faster than the overall market average. Because who wants to be average?
Russell 2000 Index: A stock market index tracking 2,000 small-cap U.S. companies. Because the S&P 500 isn’t enough.
Drawdown: The peak-to-trough decline in an investment’s value, usually expressed as a percentage. When your portfolio feels like it’s been hit by a bus.
Beta: A measure of an investment’s volatility compared to the overall market, often using the S&P 500 as a benchmark. Because nothing says “I’m unpredictable” like a beta of 1.4.
AUM (Assets Under Management): The total market value of assets that an investment fund manages on behalf of investors. Because numbers are fun.
Sector tilt: When a portfolio has a higher allocation to certain industries or sectors compared to a benchmark. Because why blend in when you can stand out?
Concentrated risk profile: When an investment or portfolio is heavily weighted in a few holdings or sectors, increasing risk. Like putting all your eggs in one basket… and then shaking it.
ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds. Because mutual funds are too much work.

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2025-12-14 19:22