Should Vanguard Russell 2000 Growth ETF (VTWG) Be on Your Investing Radar?

If you're on the lookout for a way to gain broad exposure to the small-cap growth segment of the US equity market, the Vanguard Russell 2000 Growth ETF (VTWG) could be a worthwhile addition to your investment strategy. Launched on September 22, 2010, this passively managed exchange-traded fund (ETF) is sponsored by Vanguard and has gathered over $1.05 billion in assets, which places it among the medium-sized ETFs designed to track the performance of small-cap growth stocks in the US.

Why Small Cap Growth?

Small-cap companies, defined as firms with a market capitalization under $2 billion, are often seen as having higher growth potential than their large and mid-cap peers. However, they do come with increased risk. Growth stocks, which typically exhibit faster growth rates, carry higher valuations and demonstrate above-average sales and earnings growth. While these stocks tend to perform well in a strong bull market, their volatility usually means they underperform during less favorable financial conditions.

Costs

When selecting an ETF, the cost is a crucial factor to consider. Generally, lower-cost funds can significantly outperform their more expensive counterparts when all other aspects are similar. With annual operating expenses of just 0.15%, VTWG is positioned as one of the more cost-effective options in the market. It also features a 12-month trailing dividend yield of 0.54%, providing a degree of income along with capital appreciation potential.

Sector Exposure and Top Holdings

One of the advantages of ETFs is that they provide diversified exposure, thus spreading the risk associated with individual stocks. It's essential, however, to review an ETF's holdings before making an investment decision. VTWG mostly invests in stocks from the Healthcare sector, which constitutes about 23.80% of its portfolio, followed by Industrials and Information Technology. Among the top individual holdings, Ftai Aviation Ltd (FTAI) represents roughly 1.14% of the total assets, alongside other notable stocks like Slbbh1142 and Sprouts Farmers Market Inc (SFM).

Performance and Risk

VTWG aims to closely mirror the performance of the Russell 2000 Growth Index, which evaluates the performance of smaller companies with higher price-to-book ratios and expected historical growth rates. As of January 30, 2025, VTWG has gained about 3.04% year-to-date and witnessed an approximately 18.76% increase over the past year. Over the last 52 weeks, the ETF has fluctuated between $177.52 and $229.76.

The ETF's beta stands at 1.17, indicating it's a higher-risk option compared to the broader market, with a standard deviation of 24.52% over the last three years. With around 1,126 holdings, VTWG effectively mitigates company-specific risks.

Alternatives

Vanguard Russell 2000 Growth ETF is rated a Zacks ETF Rank of 3 (Hold), based on anticipated asset class returns, expense ratio, momentum, and various other factors. It can serve as a solid option for investors keen on exploring the small-cap growth segment. However, there are alternatives to consider, such as the iShares Russell 2000 Growth ETF (IWO) and the Vanguard Small-Cap Growth ETF (VBK), both tracking similar indices. IWO boasts $12.84 billion in assets, while VBK has $20.29 billion. IWO has an expense ratio of 0.24%, and VBK charges just 0.07%.

Bottom-Line

Passively managed ETFs like VTWG have become popular among both institutional and retail investors due to their affordability, transparency, flexibility, and tax efficiency. They are excellent long-term investment vehicles suited for individuals looking to diversify their portfolios.

For a deeper understanding of this ETF and others, explore options that align with your investment goals and stay updated on the latest trends in the ETF market.

ETF, Investing, Growth