The S&P 500 index is the basis for a large number of index funds, including IVV and IVW. But although both funds broadly follow the same index there are some major differences between IVV and IVW which we will go over in detail in this comparison!
IVV is a large blend ETF whereas IVW falls into the category of large growth funds. This means that IVW is more heavily exposed to the technology sector than IVV. IVW also has a significantly higher expense ratio at 0.18% vs IVV’s 0.03%.
But there is much more to explore! In this article, we’ll not only look at the key metrics of each fund but dive deeper and compare fund composition and industry exposure. We’ll also cover various risk metrics and finally perform a portfolio backtest to see which fund actually performed better over the years.
IVV vs. IVW – Overview
What’s The Difference?
|Name||iShares Core S&P 500||iShares S&P 500 Growth|
|Category||Large Blend||Large Growth|
IVV is a Large Blend ETF. IVV does not follow an additional selection strategy when it comes to the S&P 500 index but rather includes all securities present in the index. This is why IVV is classified as a large blend fund as the name “iShares Core S&P 500 ETF” also suggests.
IVW is a Large Growth ETF. IVW is a more growth-focused fund that selects a segment of the same index to try and achieve a higher growth rate. However, it is still limited to large-cap companies which is why it falls under the classification of a large growth fund.
IVV and IVW are issued by iShares. Both of these funds are issued by iShares, one of the biggest fund management companies and a subsidiary of BlackRock. iShares has become one of the largest asset management companies next to Vanguard by creating low-fee index funds such as IVV.
Assets Under Management
IVV has 294.95B total assets under management. With close to 300 billion USD of assets under management IVV is one of the largest funds on the market. Other funds at this level include SPY and Vanguard’s VOO.
IVW has 35.72B total assets under management. Compared to IVV, IVW appears almost tiny. With 35 billion dollars in assets under management, IVW is just about one-tenth the size of IVV.
IVV has a Year-to-date return of 19.99%. IVV has had a phenomenal return of close to 20% this year, mostly due to the steep economic recovery after the Coronavirus crash in early 2020.
IVW has a Year-to-date return of 20.20%. The YTD return for IWV looks about the same at 20.20%. While IVW aim is to outperform the index by selecting high-growth stocks it has not achieved this result over the last year.
IVV has a dividend yield of 1.28%. IVV’s current dividend yield is close to 1% and represents the situation of the entire stock market, where dividend investors really have a hard time any opportunity to invest. With stocks at all-time highs, it will take a while for dividend payments to catch up with high valuations.
IVW has a dividend yield of 0.61%. IVW, however, has an even lower dividend yield than IVV. This is not surprising given the fact that growth companies tend to reinvest their earnings into growing the company instead of paying them ou to investors as dividends.
IVV has an expense ratio of 0.03%. This fee schedule is extremely competitive and makes IVV one of the lowest-cost funds on the market. In fact, only a few select Fidelity funds can claim an even lower expense ratio than 0.03% (and these are mostly driven by marketing efforts).
IVW has an expense ratio of 0.18%. While IVV barely has any fees, IVW charges closer to 0.2% per year. Compared to most mutual funds this is still fairly low, however, compared to IVV, IVW charges six times more fees.
IVV has a turnover of 5.00%. IVV has a standard market turnover of exactly 5% which is a healthy number for a core index fund. Generally, the higher the turnover amount per year the more speculative the investment is.
IVW has a turnover of 13.00%. IVW’s turnover rate is more than double that of IVV and speaks to the more speculative nature of IVW in the growth sector.
In this part of the post, I’ll highlight some of the key differences in terms of fund composition when it comes to the cap size of companies each fund holds. Let’s start with IVV:
85% of IVV’s holdings are large-cap companies and mid-cap stocks only make up around 15% of net assets. This is in line with the fund’s main objective of tracking the core S&P 500 index which consists mainly of large-cap stocks.
When looking at IVW, however, the picture is a little different. Here, large-cap stocks make up 92% of the funds total assets and mid-cap companies barely get to 8%. This distribution also highlights the fund’s main strategy of investing in large-cap growth companies.
Small-cap stocks are not represented at all in IVW nor in IVV. This is simply because the S&P 500 index itself does not include any small-cap companies.
When it comes to industry exposure the conservative investor tends to seek diversification throughout different sectors as to not be hit too hard by the economic downturn of one. For IVV and IVW the exposure to different sectors varies quite a bit:
Around 25% of IVV’s holdings come from the technology sector and include companies such as Apple, Microsoft, and Facebook. Lagging behind are financial services and healthcare companies at around 13% net asset value.
IVV also includes real estate at around 2.5% and some other minor industries such as basic materials, energy, and utilities.
If you thought IVV was already dominated by tech companies, think again! IVW boasts exposure to the technology sector of almost 40%! This means that close to half of the fund’s holdings are invested in Big Tech.
There are no energy companies present in IVW and real estate, basic materials, and utilities only make up a negligible 1-2% of the total assets.
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IVV vs. IVW – Analysis
Before drawing any conclusions about the funds’ investment risks let’s have a look at some more precise risk metrics such as volatility and drawdown:
|Arithmetic Mean (monthly)||$0.01||$0.01|
|Arithmetic Mean (annualized)||9.43%||10.36%|
|Geometric Mean (monthly)||0.66%||0.73%|
|Geometric Mean (annualized)||8.23%||9.14%|
|Downside Deviation (monthly)||2.92%||2.87%|
|US Market Correlation||1||0.97|
IVV has a monthly volatility of 4.28% and 14.84% annualized. While nearly 15% volatility appears quite high at first it is actually close to the industry average for large-cap ETFs and mostly depends on the past year’s market conditions.
Despite IVW’s higher turnover and more speculative nature the fund actually only slightly more volatile than IVV at 4.32% monthly and 14.97% annually.
The chart above highlights each funds’ drawdown over the past 20 years. While both funds have generally followed similar economic cycles, the differences become very apparent after the dot-com bubble post-2002 and the market crash of 2008/2009.
In the first instance, IVV recovered much faster than IVW due to its heavy exposure to the tech sector as we have seen above. However, in 2009 IVW was able to bounce back much faster than IVV and traditional industry sectors.
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IVV vs. IVW – Performance
Now for the most important question that investors face when picking a fund: What has IVV’s and IVW’s past performance been like? To answer this question we’ll first consider the annual returns of both funds followed by an actual portfolio backtest of $10,000 invested in IVV and IVW.
Although annual returns for both funds remain fairly similar throughout the decade there are some slight differences in periods of economic crises and boom times. To expose a fund’s true character it usually makes sense to look at some market crashes to see what returns the funds generated.
In the 2002 market crash, IVV clearly outperformed IVW while in the market downturn of 2008 IVW came out ahead. However, since then IVW has outperformed the more traditional IVV almost every year!
|Portfolio||Initial Balance||Final Balance||CAGR|
We can see the exact same trend when looking at our portfolio backtest: earlier in this millennium, IVV seems to be a better investment than IVW up to the market crash of 2008. In the economic recovery and boom post-2008, the more growth-oriented fund IVW performs vastly better than IVV.
A $10,000 investment in IVV would have resulted in a final balance of $52,233 whereas IVW would have returned more than $60,000. This comes to a compound annual growth rate of 8.23% for IVV and 9.14% for IVW, almost 1% more per year.
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With IVW better performance the question then becomes: will these times of economic boom and easy money continue? How will IVW perform in the next market downturn or when regulators step in to break up big tech companies?
While none of these questions can be answered definitely it appears obvious that IVW carries with it not only greater opportunity for returns but also slightly greater risk.
And while returns are never guaranteed, expenses certainly are. Remember that you will be paying six times more in fees for holding IVW than you would for holding IVV.
When it comes down to IVV vs IVW we have to weigh the certainty of higher fees against the possibility of greater returns. The choice is yours.
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