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

If you're searching for a way to invest in the Small Cap Growth segment of the U.S. equity market, the Vanguard Russell 2000 Growth ETF (VTWG) might be worth considering. This passively managed exchange-traded fund was launched on September 22, 2010, and is designed to provide investors with exposure to smaller growth-oriented companies.

Sponsored by Vanguard, VTWG has accumulated over $1.05 billion in assets, placing it among the mid-sized ETFs focused on matching Small Cap Growth in the U.S. market.

Why Consider Small Cap Growth?

Investing in small-cap companies—those with a market capitalization under $2 billion—offers potential for higher returns. However, this potential comes with increased risks. Growth stocks tend to exhibit above-average rates of sales and earnings growth, and while they might outperform the broader market during bullish periods, they can also carry higher valuations and increased volatility compared to other investments. In other words, although growth stocks may shine in strong market conditions, value stocks tend to have a history of delivering more consistent returns across various market environments.

Cost Efficiency

When assessing an ETF’s performance, one crucial factor to consider is the expense ratio. Lower expense ratios can lead to significantly better long-term returns, provided all other variables are equal. For VTWG, the annual operating expense is only 0.15%, making it one of the cost-effective options available in this investment category. Additionally, it offers a 12-month trailing dividend yield of 0.54%, adding a potential source of income for investors.

Sector Allocation and Major Holdings

One significant advantage of investing in ETFs is the diversified exposure they provide, which helps reduce the risk associated with individual stock investments. VTWG offers transparency as it regularly updates its portfolio holdings. Currently, it allocates around 23.80% of its assets to the Healthcare sector, with notable allocations also in the Industrials and Information Technology sectors.

Among its top individual holdings, Ftai Aviation Ltd (FTAI) accounts for approximately 1.14% of the total assets. Other significant holdings include Slbbh1142 and Sprouts Farmers Market Inc (SFM).

Performance Metrics and Risk Assessment

The Vanguard Russell 2000 Growth ETF aims to replicate the performance of the Russell 2000 Growth Index prior to any fees and expenses. This index is designed to reflect the performance of small-cap companies with high price-to-book ratios and strong historical or projected growth rates. As of January 30, 2025, VTWG has experienced a year-to-date increase of about 3.04% and a one-year return of approximately 18.76%. Over the past year, the ETF has traded in a range between $177.52 and $229.76.

However, investing in VTWG involves certain risks. With a beta of 1.17 and a standard deviation of 24.52% over the trailing three-year period, it presents a higher level of risk compared to other ETFs. On the upside, its portfolio consists of about 1,126 holdings, which helps to mitigate company-specific risk.

Other Options to Consider

The Vanguard Russell 2000 Growth ETF holds a Zacks ETF Rank of 3 (Hold), taking into consideration factors such as expected returns, expense ratios, and market momentum. It is a solid choice for investors interested in the Small Cap Growth segment. However, there are alternative ETFs that may also align with your investment goals. For instance, the iShares Russell 2000 Growth ETF (IWO) and the Vanguard Small-Cap Growth ETF (VBK) are tracking similar indices. IWO has assets totaling $12.84 billion, while VBK stands at $20.29 billion. IWO has an expense ratio of 0.24%, and VBK offers a lower expense ratio of 0.07%.

Conclusion

Ultimately, the Vanguard Russell 2000 Growth ETF represents an effective investment vehicle for individuals looking to build a long-term portfolio focused on small-cap growth. Its passive management strategy, low costs, transparency, and tax efficiency make it an attractive option for both institutional and retail investors. To further explore this ETF and discover additional options, investors are encouraged to research products that align with their individual investment objectives.

ETF, Investment, Growth