Is the iShares Russell 1000 Growth ETF a millionaire maker?

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

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

A word of caution: Turning modest regular stock investments into seven figures is a multi-decade project. This will be the case regardless of which index-based exchange-traded fund you choose to hold. The iShares Russell 1000 Growth ETF is likely to get you further down the road, and faster.

Analysis of the iShares Russell 1000 Growth ETF

The name is a bit misleading. It looks like the fund would hold 1,000 growth stocks, but that’s not the case. It only holds about 400 tickers at a time — only the growth stocks found in the Russell 1000 Index. This index of course includes all growth names found in S&P 500as well as growth stocks among the next 500 major market tickers. Generally, these other names are mid-caps.

While large-cap growth stocks (and tech stocks in particular) have been the stars of the show over the past few years, this is a cyclical phenomenon. If history repeats itself, mid-cap stocks – and especially mid-caps INCREASE stocks — could really start to shine as the economy pulls out of a lull and enters a more moderate, post-AI boom phase.

This is the expectation of analysts with JP Morgan anyway. Based on their mid-year observation that “high-quality small-cap stocks are now trading at a near-record valuation discount to their large-cap peers,” the investment bank believes that “the performance of SMID-cap (small cap and mid cap) in the US will be robust over a 10 to 15 year investment horizon, rivaling even that of US large caps.”

And JP Morgan isn’t the only one bullish on this stretch of the stock market. Following the Federal Reserve’s recent interest rate cut — with more likely on the way — Goldman Sachs mid-caps are expected to outperform both large and small caps in the near future due to cheaper valuations and superior growth prospects.

Usually better

That’s not to say that the iShares Russell 1000 Growth ETF has always performed as well as it should. It underperformed at times during the bull market that began 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.

Keep in mind, though Apple, Microsoftand Nvidia are the top holdings of this top-weighted ETF now, most of the market’s current top tech names have replaced once-biggest companies like Alphabet, ExxonMobiland even Walmart and General Electric. This has hurt more than helped this fund’s performance of late.

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

Data by YCharts.

Again, part of this performance advantage comes from its mid-cap exposure. Another part of it is just the result of only owning names of growth.

Where it comes from, it works. If the SPDR S&P 500 ETF Trust willis ever a choice that makes millionaires, then this iShares fund certainly is.

A smart option for those looking for growth

In terms of risk management, it wouldn’t be fair to say that this exchange traded fund is particularly well diversified. Being weighted by market cap means it’s still the most important due to its huge holdings in the aforementioned Apple and Microsoft. Although not intentional, it is also heavily exposed to the technology sector, which accounts for 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 that more balance is needed when using index-based exchange-traded funds to build a multi-million dollar portfolio, then this ETF is not for you.

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