Choosing Between Small-Cap Growth Leaders: A VBK vs RZG Breakdown

When evaluating small-cap investment vehicles, the Vanguard Small-Cap Growth ETF (VBK) and Invesco S&P SmallCap 600 Pure Growth ETF (RZG) represent two distinctly different philosophies. While both target emerging U.S. small-cap companies with growth potential, their execution—from cost structure to portfolio composition—diverges significantly.

Performance Metrics: Similar Outcomes, Different Paths

Over the trailing 12 months through January 2026, RZG pulled ahead with a 15.9% return versus VBK’s 14.4%. However, this modest advantage requires context. Both funds experienced nearly identical maximum drawdowns of approximately -38% over five years, suggesting comparable downside risk exposure. An investor who deployed $1,000 five years ago would have accumulated roughly $1,154 with RZG and $1,145 with VBK—a negligible difference that hardly justifies RZG’s higher fee burden.

The Cost Advantage: VBK’s Clear Edge

The expense ratio differential tells a compelling story. VBK charges just 0.07% annually, while RZG levies 0.35%—a five-fold difference. For long-term holders, this distinction compounds dramatically. On a $100,000 investment over a decade, the fee spread could exceed $3,000. VBK also delivers a marginally superior dividend yield of 0.5% compared to RZG’s 0.4%.

The scale gap reinforces VBK’s efficiency. With $39.7 billion in assets under management against RZG’s $108.6 million, Vanguard’s offering benefits from operational economies and significantly deeper liquidity for entry and exit.

Portfolio Construction: Breadth vs. Concentration

VBK maintains a fortress of diversification with 579 holdings spread across small-cap equities. Its sector allocation favors technology (27%), industrials (21%), and healthcare (18%). Leading positions—Insmed Inc. (1.44%), Comfort Systems USA Inc. (1.13%), and SoFi Technologies Inc. (1.11%)—represent modest portfolio weights that limit single-stock volatility.

RZG adopts a filtered approach through the S&P SmallCap 600 Pure Growth Index, narrowing its universe to 131 companies. Healthcare dominates at 26%, followed by industrials (18%) and financial services (16%). Top holdings including ACM Research Inc., PTC Therapeutics Inc., and Progyny Inc. claim meaningfully larger portfolio percentages, introducing what analysts call sector and idiosyncratic risk—the danger that concentrated bets underperform or encounter company-specific headwinds.

Volatility Profile: Measuring Price Sensitivity

Both funds carry beta values indicating elevated volatility relative to the S&P 500. VBK’s beta of 1.4 slightly exceeds RZG’s 1.2, reflecting its tech-heavy positioning. For risk-averse investors, this represents a distinguishing factor, though both remain suitable primarily for those with intermediate-to-long investment horizons.

Making the Decision: Which Fund Suits Your Strategy?

Choose RZG if: You possess a high risk tolerance, welcome active management decisions at the concentrated small-cap frontier, and expect that healthcare-focused exposure will outperform. The premium fees may prove worthwhile if sector rotation works in your favor.

Choose VBK if: You prioritize cost minimization, value broad market access with minimal company-specific risk, and intend to maintain holdings through market cycles. The lower expense ratio, superior asset base, and extensive diversification align with buy-and-hold wealth accumulation.

The fundamental truth: RZG offers targeted opportunity at the cost of higher fees and concentration risk. VBK delivers accessible small-cap exposure through institutional efficiency and staying power. Your time horizon, risk appetite, and conviction in sector bets should drive the decision.