Is IWM or SPY the Better ETF for Investors? Here's What the Data Says

By Katie Brockman – Mar 2, 2026 at 8:22PM ESTKey PointsIWM charges a higher expense ratio than SPY and holds nearly four times as many stocks.Recent one-year performance favors IWM, but its five-year max drawdown is notably deeper.IWM’s sector mix tilts toward healthcare and industrials, while SPY remains tech-heavy.The State Street SPDR S&P 500 ETF Trust (SPY +0.06%) and the iShares Russell 2000 ETF (IWM +0.92%) track different parts of the U.S. equity market.SPY targets large-cap U.S. stocks and aims to mirror the S&P 500 Index, while IWM targets small-cap U.S. equities and tracks the Russell 2000 Index. This comparison highlights how the two funds differ in cost, performance, and risk, helping investors consider which may better fit their goals.Snapshot (cost & size)MetricSPYIWMIssuerSPDRiSharesExpense ratio0.09%0.19%1-yr return (as of March 2, 2026)15.49%22.92%Dividend yield1.05%0.98%Beta (5Y monthly)1.001.30AUM$709 billion$74 billionBeta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.IWM comes with a higher expense ratio than SPY, making it a costlier choice for investors focused on minimizing fees. Yield is nearly identical, so the main cost difference lies in fees rather than income payout.Performance & risk comparisonMetricSPYIWMMax drawdown (5 y)-24.50%-31.91%Growth of $1,000 over 5 years$1,761$1,167What's insideIWM tracks the Russell 2000, providing exposure to U.S. small-cap stocks with a portfolio spanning 1,938 holdings. The fund’s largest sector weights are healthcare (18%), industrials (17%), and financial services (17%), and its top holdings include Bloom Energy, Fabrinet, and Credo Technology Group, each representing 1% of assets or less.SPY, by contrast, reflects the S&P 500’s large-cap universe, concentrating over a third of assets in technology, plus significant allocations to financial services and communication services. Its top stocks — Nvidia, Apple, and Microsoft — collectively make up nearly 20% of the fund, leading to a more top-heavy profile than IWM. Neither fund carries leverage, ESG mandates, or other structural quirks.For more guidance on ETF investing, check out the full guide at this link.What this means for investorsSPY and IWM take vastly different approaches to equities: one targets large-cap giants, while the other focuses on smaller companies.The biggest advantage of investing in an S&P 500 ETF like SPY is the stability. The S&P 500 includes 500 of the largest U.S.-based companies, and these stocks are more likely to weather market volatility and deliver consistent growth over the long term.Small-cap stocks, on the other hand, can carry more risk, but they also have greater growth potential than many of their larger counterparts. IWM contains nearly 2,000 small-cap stocks, and if any of them become superstar performers, it could set this ETF up for potentially lucrative returns.Volatility is something to consider with a small-cap ETF, and IWM’s higher beta and deeper five-year drawdown signal more intense price fluctuations. While IWM has underperformed over the last five years, it has edged past SPY with higher 12-month total returns.Both ETFs can be strong buys, but the best fit for your portfolio will depend on your comfort with risk and desired growth potential.Read NextFeb 14, 2026 •By Jake LerchVOO Has Delivered Higher Returns, But IWM Provides Broad Small Cap ExposureFeb 9, 2026 •By Adam LevyThese ETFs Handily Outperformed the S&P 500 in January, and They're Just Getting StartedFeb 6, 2026 •By David DierkingIs the Small-Cap Rebound Here? 3 ETFs Set to Surge 45% by 2028Jan 26, 2026 •By Jeremy BowmanPrediction: The Russell 2000 Will Beat the S&P 500 This Year. Here's How To Take Advantage.Jan 26, 2026 •By Adé HennisIWM vs. QQQ: The Small-Cap Star ETF Against the Large Growth Fund Jan 25, 2026 •By Jeremy BowmanThe Stock Market Just Did Something It Hasn't Done Since 1996.

History Says This Happens Next.About the AuthorKatie Brockman is a contributing writer at The Motley Fool covering retirement, Social Security, and investing fundamentals. Prior to The Motley Fool, Katie held various writing and editing roles at companies ranging from small start-ups to multimillion-dollar brands. Her work has appeared in USA Today, Inc magazine, and other authoritative media outlets. She holds a bachelor’s degree in business administration and management from Illinois Wesleyan University.TMFKatieBrockmanStocks MentionediShares Trust - iShares Russell 2000 ETFNYSEMKT: IWM$263.81(+0.92%)+$2.40SPDR S&P 500 ETF TrustNYSEMKT: SPY$686.96(+0.14%)+$0.97*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.