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IWM vs. VO: What’s The Difference?

The iShares Russell 2000 ETF (IWM) and the Vanguard Mid-Cap Index Fund ETF Shares (VO) are both among the Top 100 ETFs. IWM is a iShares Small Blend fund and VO is a Vanguard Mid-Cap Blend fund. So, what’s the difference between IWM and VO? And which fund is better?

The expense ratio of IWM is 0.15 percentage points higher than VO’s (0.19% vs. 0.04%). IWM also has a higher exposure to the healthcare sector and a higher standard deviation. Overall, IWM has provided lower returns than VO over the past ten years.

In this article, we’ll compare IWM vs. VO. We’ll look at fund composition and portfolio growth, as well as at their holdings and risk metrics. Moreover, I’ll also discuss IWM’s and VO’s annual returns, performance, and industry exposure and examine how these affect their overall returns.

Summary

IWMVO
NameiShares Russell 2000 ETFVanguard Mid-Cap Index Fund ETF Shares
CategorySmall BlendMid-Cap Blend
IssueriSharesVanguard
AUM66.48B154.08B
Avg. Return13.52%14.34%
Div. Yield0.86%1.23%
Expense Ratio0.19%0.04%

The iShares Russell 2000 ETF (IWM) is a Small Blend fund that is issued by iShares. It currently has 66.48B total assets under management and has yielded an average annual return of 13.52% over the past 10 years. The fund has a dividend yield of 0.86% with an expense ratio of 0.19%.

The Vanguard Mid-Cap Index Fund ETF Shares (VO) is a Mid-Cap Blend fund that is issued by Vanguard. It currently has 154.08B total assets under management and has yielded an average annual return of 14.34% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.04%.

IWM’s dividend yield is 0.37% lower than that of VO (0.86% vs. 1.23%). Also, IWM yielded on average 0.81% less per year over the past decade (13.52% vs. 14.34%). The expense ratio of IWM is 0.15 percentage points higher than VO’s (0.19% vs. 0.04%).

Fund Composition

Industry Exposure

IWM vs. VO - Industry Exposure

IWMVO
Technology14.21%22.01%
Industrials14.78%11.92%
Energy3.74%3.82%
Communication Services3.79%5.61%
Utilities2.44%5.12%
Healthcare20.3%13.03%
Consumer Defensive3.65%3.25%
Real Estate8.59%8.67%
Financial Services13.76%11.08%
Consumer Cyclical10.99%12.12%
Basic Materials3.74%3.36%

The iShares Russell 2000 ETF (IWM) has the most exposure to the Healthcare sector at 20.3%. This is followed by Industrials and Technology at 14.78% and 14.21% respectively. Consumer Defensive (3.65%), Basic Materials (3.74%), and Energy (3.74%) only make up 11.13% of the fund’s total assets.

IWM’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Consumer Cyclical, Financial Services, and Technology stocks at 3.79%, 8.59%, 10.99%, 13.76%, and 14.21%.

The Vanguard Mid-Cap Index Fund ETF Shares (VO) has the most exposure to the Technology sector at 22.01%. This is followed by Healthcare and Consumer Cyclical at 13.03% and 12.12% respectively. Basic Materials (3.36%), Energy (3.82%), and Utilities (5.12%) only make up 12.30% of the fund’s total assets.

VO’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Financial Services, Industrials, and Consumer Cyclical stocks at 5.61%, 8.67%, 11.08%, 11.92%, and 12.12%.

IWM is 7.27% more exposed to the Healthcare sector than VO (20.3% vs 13.03%). IWM’s exposure to Industrials and Technology stocks is 2.86% higher and 7.80% lower respectively (14.78% vs. 11.92% and 14.21% vs. 22.01%). In total, Consumer Defensive, Basic Materials, and Energy also make up 0.70% more of the fund’s holdings compared to VO (11.13% vs. 10.43%).

Holdings

IWM - Holdings

IWM HoldingsWeight
AMC Entertainment Holdings Inc Class A0.52%
Intellia Therapeutics Inc0.33%
Crocs Inc0.3%
BlackRock Cash Funds Treasury SL Agency0.29%
Tenet Healthcare Corp0.26%
Lattice Semiconductor Corp0.26%
Tetra Tech Inc0.25%
II-VI Inc0.25%
EastGroup Properties Inc0.24%
Arrowhead Pharmaceuticals Inc0.24%

IWM’s Top Holdings are AMC Entertainment Holdings Inc Class A, Intellia Therapeutics Inc, Crocs Inc, BlackRock Cash Funds Treasury SL Agency, and Tenet Healthcare Corp at 0.52%, 0.33%, 0.3%, 0.29%, and 0.26%.

Lattice Semiconductor Corp (0.26%), Tetra Tech Inc (0.25%), and II-VI Inc (0.25%) have a slightly smaller but still significant weight. EastGroup Properties Inc and Arrowhead Pharmaceuticals Inc are also represented in the IWM’s holdings at 0.24% and 0.24%.

VO - Holdings

VO HoldingsWeight
IDEXX Laboratories Inc0.78%
DocuSign Inc0.75%
Marvell Technology Inc0.68%
IQVIA Holdings Inc0.68%
Chipotle Mexican Grill Inc0.63%
Veeva Systems Inc Class A0.62%
Digital Realty Trust Inc0.62%
Centene Corp0.62%
Aptiv PLC0.62%
Carrier Global Corp Ordinary Shares0.61%

VO’s Top Holdings are IDEXX Laboratories Inc, DocuSign Inc, Marvell Technology Inc, IQVIA Holdings Inc, and Chipotle Mexican Grill Inc at 0.78%, 0.75%, 0.68%, 0.68%, and 0.63%.

Veeva Systems Inc Class A (0.62%), Digital Realty Trust Inc (0.62%), and Centene Corp (0.62%) have a slightly smaller but still significant weight. Aptiv PLC and Carrier Global Corp Ordinary Shares are also represented in the VO’s holdings at 0.62% and 0.61%.

Risk Analysis

IWMVO
Mean Return1.121.14
R-squared77.7392.22
Std. Deviation18.8715.65
Alpha-5.12-2.71
Beta1.231.11
Sharpe Ratio0.680.83
Treynor Ratio9.5611.32

The iShares Russell 2000 ETF (IWM) has a Sharpe Ratio of 0.68 with a Mean Return of 1.12 and a Beta of 1.23. Its Treynor Ratio is 9.56 while IWM’s Standard Deviation is 18.87. Furthermore, the fund has a Alpha of -5.12 and a R-squared of 77.73.

The Vanguard Mid-Cap Index Fund ETF Shares (VO) has a Standard Deviation of 15.65 with a Treynor Ratio of 11.32 and a Sharpe Ratio of 0.83. Its Alpha is -2.71 while VO’s R-squared is 92.22. Furthermore, the fund has a Beta of 1.11 and a Mean Return of 1.14.

IWM’s Mean Return is 0.02 points lower than that of VO and its R-squared is 14.49 points lower. With a Standard Deviation of 18.87, IWM is slightly more volatile than VO. The Alpha and Beta of IWM are 2.41 points lower and 0.12 points higher than VO’s Alpha and Beta.

Performance

Annual Returns

IWM vs. VO - Annual Returns

YearIWMVO
202019.89%18.22%
201925.42%31.04%
2018-11.02%-9.21%
201714.66%19.25%
201621.36%11.23%
2015-4.33%-1.34%
20144.94%13.76%
201338.85%35.15%
201216.39%15.98%
2011-4.19%-1.96%
201026.76%25.57%

IWM had its best year in 2013 with an annual return of 38.85%. IWM’s worst year over the past decade yielded -11.02% and occurred in 2018. In most years the iShares Russell 2000 ETF provided moderate returns such as in 2017, 2012, and 2020 where annual returns amounted to 14.66%, 16.39%, and 19.89% respectively.

The year 2013 was the strongest year for VO, returning 35.15% on an annual basis. The poorest year for VO in the last ten years was 2018, with a yield of -9.21%. Most years the Vanguard Mid-Cap Index Fund ETF Shares has given investors modest returns, such as in 2014, 2012, and 2020, when gains were 13.76%, 15.98%, and 18.22% respectively.

Portfolio Growth

IWM vs. VO - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
IWM$10,000$36,68613.52%
VO$10,000$40,40414.34%

A $10,000 investment in IWM would have resulted in a final balance of $36,686. This is a profit of $26,686 over 11 years and amounts to a compound annual growth rate (CAGR) of 13.52%.

With a $10,000 investment in VO, the end total would have been $40,404. This equates to a $30,404 profit over 11 years and a compound annual growth rate (CAGR) of 14.34%.

IWM’s CAGR is 0.81 percentage points lower than that of VO and as a result, would have yielded $3,718 less on a $10,000 investment. Thus, IWM performed worse than VO by 0.81% annually.


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