Vanguard's long-range model projects a possible return edge for U.S. small-caps over large-caps. IWO holds 1,127 growth stocks, but the forecast is no promise and recent gains say little about its next decade.
Healthcare makes up 29.2% of IWO, and information technology accounts for another 20%. Those sector weights matter for investors looking beyond the largest companies in the S&P 500.
Vanguard's long-range forecast favors U.S. small-caps over large-caps over both the next 10 years and the next 30. It is a case for diversification, not a timetable for a market shift.
That distinction matters for anyone considering the iShares Russell 2000 Growth ETF (IWO). The fund invests in smaller growth companies. Its performance can diverge sharply from the S&P 500, and neither recent gains nor a forecast can establish what it will return over the next 20 years.
A current IWO holdings snapshot puts healthcare at about 30.36% of assets and technology at about 20.76%, illustrating the fund's substantial sector tilts.
What Vanguard's forecast says
Vanguard projects average annual returns of 5.1% to 7.1% for U.S. small-cap stocks over the next 30 years. Its range for U.S. large-cap stocks is 4.6% to 6.6%.
The ranges overlap. Even the higher small-cap estimate does not guarantee that smaller companies will beat larger ones every year, or over any particular investor's holding period. Vanguard says its annualized nominal return and volatility forecasts are based on a June 30, 2026, run of the Vanguard Capital Markets Model. The model methodology explains the approach.
The forecast may interest investors who worry that the S&P 500's recent strength and concentration in large companies leave the index exposed if expectations for major technology firms fall short. Some also question whether big technology companies will earn the returns investors expect from their spending on AI data centers and semiconductors.
Those are possible scenarios, not established outcomes. Smaller companies could benefit from wider AI adoption, but the available information does not show that they will.
Janus Henderson cites consensus earnings growth projections for the Russell 2000 of roughly 25% in 2026 and 22% in 2027, compared with about 33% and 11% for the S&P 500. The figures point to different projected earnings paths for small- and large-cap stocks, not a guarantee of investment returns.
What IWO actually owns
IWO tracks growth-oriented stocks in the Russell 2000, a widely recognized index of small-cap companies. It holds 1,127 stocks. Healthcare accounts for 29.2% of the fund, information technology 20%, industrials 15.8% and financials 9.7%.
The fund spreads its money across many companies, but its healthcare and technology positions make its sector mix uneven. Yahoo Finance's holdings snapshot lists smaller growth companies such as JFrog, Moog, Glaukos, Brinker International, BrightSpring Health Services, Krystal Biotech, Protagonist Therapeutics, Twist Bioscience and FirstCash.
The Globe and Mail's comparative ETF coverage says IWO has a higher healthcare concentration than some small-cap growth peers. Those funds lean more toward technology and industrials.
BlackRock's iShares ETF listing gives IWO an expense ratio of 0.24% and about $14.29 billion in assets. The portfolio date is Aug. 31, 2026. These details help describe the fund, but they do not determine its future performance.
IWO returned about 10.6% annualized over the past 10 years and about 23.2% over the past year. For comparison, S&P 500 ETFs have averaged about 15% annually over the past 16 years. The S&P 500 itself is described as up about 12% year to date.
These figures cover different periods and look backward. They are not a forecast or proof that one fund will lead in the future.
Past returns do not settle whether IWO belongs in an individual portfolio. A growth-focused small-cap fund may behave differently from a large-cap index. Holding many stocks does not remove market risk.
Investors comparing IWO with an S&P 500 fund should consider whether they want this specific exposure and can tolerate stretches when small-caps lag.
Forecasts are not portfolio plans
Recent market gains can make a long-range forecast sound like a call to switch investments. That goes beyond what the evidence says.
Vanguard's estimates cover expected returns across broad market categories over long periods. They do not predict IWO's path, identify a turning point or show that a small-cap fund will outperform during the next 20 years specifically.
A dividend-growth analysis offers a separate example of the limits of screening strategies. A company's characteristics may help define a fund's holdings, but they cannot prevent stock-market losses. IWO's growth focus is a selection approach, not protection from declines.
For investors who want to diversify beyond the S&P 500's largest holdings, IWO is one possible tool. It is not a dependable bet on a small-cap comeback. Vanguard's forecast gives investors a reason to examine the trade-off. IWO's sector weights and uncertain future returns are reasons not to treat the projection as a promise.
Market-cap diversification means holding companies of different sizes instead of relying entirely on one market segment. Small-cap and large-cap stocks can lead at different times. A long investment horizon gives a forecast more time to matter, but it does not make the forecast certain.
IWO narrows small-company exposure further by focusing on growth stocks. It is not interchangeable with a broad small-cap fund or the S&P 500.
