A striking performance gap has opened between two growth-focused ETFs, with small-cap stocks quietly delivering far stronger returns than their mega-cap counterparts over the past year.
The iShares Morningstar Small-Cap Growth ETF (ISCG) posted a 10.2% return over the trailing 12 months ending October 23, 2026, compared to just 1.7% for the Vanguard Russell 1000 Growth ETF (VONG).
That gap is notable given VONG’s dominant showing over a longer horizon, where a $1,000 investment five years ago would have grown to $1,705, versus $1,231 for ISCG over the same stretch.
The reversal reflects a broader pattern in equity markets, where small-cap names tend to surge when investors rotate away from the largest, most liquid technology stocks toward higher-risk opportunities.
Questions surrounding AI infrastructure spending and whether enormous capital outlays will generate adequate returns have clouded the outlook for mega-cap technology names that dominate VONG’s portfolio.
VONG allocates roughly 70% of its holdings to the technology sector, with Nvidia (NVDA) representing the single largest position at 15.7%, followed by Alphabet (GOOGL) at 10.7% and Apple (AAPL) at 7.7% across its 371 total holdings.
ISCG takes a dramatically different approach, spreading capital across approximately 929 smaller companies with Industrials as the top sector at 23.9%, followed by Technology at 22.5% and Healthcare at 17.9%.
That diversification comes with a cost, as ISCG’s maximum five-year drawdown of 37.8% is steeper than VONG’s 32.7%, reflecting the inherent volatility of the small-cap segment.
Despite the risk difference, both funds carry nearly identical beta readings of 1.15 and 1.16 respectively, and both charge the same rock-bottom 0.06% annual expense ratio.
ISCG also edges ahead on income, offering a 0.65% dividend yield against VONG’s 0.43%, a modest but real advantage for investors who value distributions alongside growth.
The asset base tells a very different story about investor adoption, with VONG commanding roughly $47 billion in assets under management compared to ISCG’s $967.5 million.
Higher interest rates present a structural headwind for richly valued technology stocks, potentially sustaining the conditions that have allowed small-cap growth names to outpace their larger rivals in recent months.
Analysts who study the two funds suggest neither is objectively superior, with the decision hinging on whether an investor prefers concentrated exposure to dominant market leaders or wider access to emerging growth companies.
VONG functions well as a core portfolio holding given its scale and established holdings, while ISCG is generally considered more appropriate as a supplementary allocation for investors seeking targeted small-cap growth exposure.
