Is the iShares Russell 1000 Growth ETF a Millionaire Maker?

For most fans of exchange-traded funds (ETFs), the iShares Russell 1000 Growth ETF (IWF -0.09%) isn’t exactly in the middle of their investment radars. The $90 billion fund just isn’t as popular as options like the SPDR S&P 500 ETF or the Invesco QQQ Trust.

Don’t let its relatively small size fool you, though. This little fund packs a big performance punch. If you’re expecting a long-term position in the SPDR S&P 500 ETF to make you a millionaire, this iShares fund can certainly do the job just as well, and in measurably less time.

A word of caution: Turning modest regular investments in stocks into a seven-figure sum is a multidecade project. That’s going to be the case no matter which index-based exchange-traded fund you opt to own. The iShares Russell 1000 Growth ETF is just likely to get you farther down that road, and to do it faster.

Dissecting the iShares Russell 1000 Growth ETF

The name is a little bit misleading. It seems like the fund would hold 1,000 growth stocks, but that’s not the case. It only holds around 400 tickers at any given time — just the growth stocks found within the Russell 1000 Index. This index of course includes all the growth names found within the S&P 500, as well as the growth stocks among the market’s next 500 major tickers. By and large, these other names are mid caps.

While large-cap growth stocks (and technology stocks in particular) have been the stars of the show for the past few years, this is a cyclical phenomenon. If history repeats itself, mid-cap stocks — and especially mid-cap growth stocks — could really start to shine as the economy works its way out of a lull and enters a more moderated, post-AI-boom phase.

That’s the expectation from analysts with J.P. Morgan anyway. Based on their midyear observation that “high-quality smaller-cap stocks now trade at a near-record valuation discount versus their large-cap peers,” the investment bank believes “U.S. SMID-cap [small cap and mid cap] equity returns will be robust over a 10-to-15-year investment horizon, even rivalling that of U.S. large caps.”

And J.P. Morgan isn’t alone in its bullishness on this sliver of the stock market. Following the Federal Reserve’s recent rate cut — with more likely on the way — Goldman Sachs expects mid-cap names to outperform both large and small caps for the foreseeable future thanks to their cheaper valuations and superior growth prospects.

Usually better

That doesn’t mean the iShares Russell 1000 Growth ETF has always performed as well as it seemingly should have. It underperformed at times during the bull market that began back in 2002, for example. It also lagged portions of the bull market between 2009 and 2020 largely because it was overloaded with the wrong growth stocks at the wrong time.

Remember, although Apple, Microsoft, and Nvidia are this cap-weighted ETF’s top holdings now, most of the market’s current top tech names have displaced the once-biggest companies like Alphabet, ExxonMobil, and even Walmart and General Electric. This has hurt more than it’s helped this fund’s performance of late.

But given enough time, the iShares Russell 1000 Growth ETF enjoys a healthy performance edge on the S&P 500 itself. Over the course of the past 20 years, the iShares fund has gained an average of 12.2% per year, versus the S&P 500’s yearly gain of 10.5%. That’s not a huge difference, but it adds up over time.

Data by YCharts.

Again, part of this performance edge stems from its exposure to mid caps. Another part of it is just the result of holding nothing but growth names.

Wherever it comes from, it works. If the SPDR S&P 500 ETF Trust was ever a millionaire-making pick, then certainly this iShares fund is.

A smart option for growth seekers

As far as managing risk goes, it wouldn’t be accurate to say this exchange-traded fund is especially well diversified. Being market-cap-weighted means it’s still top-heavy thanks to huge holdings in the aforementioned Apple and Microsoft. Although not intentionally so, it’s also heavily exposed to the technology sector as well, which makes up nearly 40% of the fund’s total value. And of course, it’s all growth — there’s no value here, by design.

If you feel more balance is required when using index-based exchange-traded funds to build a million-dollar portfolio, then this ETF isn’t for you.

If you’re looking for an easy way to at least give yourself a chance of beating the market’s most-watched benchmark, though, this one delivers, and it does so with less drama than owning a more volatile fund like the Invesco QQQ Trust. At the very least, consider adding it to an existing position in the S&P 500 ETF Trust or Invesco’s QQQ.