MGK vs. RZG: The Growth ETF Comparison That Isn't What It Looks Like

The headline question is simple on its face: which growth ETF is the better long-term buy, Vanguard's mega-cap MGK or Invesco's small-cap RZG? The headline answer is less interesting than the subtext — because you're not comparing two ways to play the same factor. You're comparing two completely different economic bets dressed in the same label.

MGK and RZG share the word "growth." Beyond that, they diverge on capitalization, sector concentration, valuation multiples, cost, volatility, and the macro environment each one is built to exploit. The factor stack for each fund tells a story the marketing blurbs won't.

MGK: Concentrated Tech Growth at 36 Times Earnings

Vanguard Mega Cap Growth (MGK) tracks the CRSP US Mega Cap Growth Index. It holds 60 stocks, and the top 10 account for 63.41% of total assets. NVIDIA alone is 13.22%, Apple 12.12%, Microsoft 7.48%, Alphabet 4.64%. That's the core of the position.

The sector breakdown makes the concentration explicit: Information Technology is 57.6% of the fund, Communication Services adds another 16.2%. Combined, tech-adjacent names represent nearly three-fifths of MGK. Consumer Discretionary is 6.8%, Health Care 4.9%. This is a technology growth fund that happens to hold a few non-tech names for ballast.

The valuation reflects that concentration. MGK's blended P/E ratio sits at 36.32. That is the multiple investors are paying for the earnings power of mega-cap tech leaders. For context, that is well above the broader S&P 500 average and reflects the premium the market assigns to dominant, scalable franchises — even when those franchises face difficult year-over-year comparisons after the AI investment boom of 2024-2025.

The cost structure is the one unambiguous advantage. MGK's expense ratio is 0.05%. On a $34.48 billion fund, that fee drag is effectively invisible. Over a decade, the savings versus a 0.35% fund compound into real dollars — roughly 3 percentage points per year of net return difference from fees alone.

Price action tells the short-term story. MGK is at $90.79, up 18% over the past 120 days and 9.98% year-to-date. Its rolling one-year return is 17.88%. The RSI sits at 62.9, which is firm without being overbought. The price is above both its 50-day moving average ($87.68) and its 200-day moving average ($82.86), consistent with an intact uptrend. But 20-day volatility is 3.40%, reflecting the underlying volatility of mega-cap tech.

Portfolio role: MGK is your concentrated mega-cap growth sleeve. It wins when technology leadership compounds, when scale matters, and when the macro environment favors quality growth over size effects. It loses when the market rotates away from concentrated tech, when rates pressure high multiples, or when the earnings boom that justified those multiples starts to decelerate.

RZG: Small-Cap Growth in the Rotation's Shadow

Invesco S&P SmallCap 600 Pure Growth (RZG) tracks a completely different universe. It holds 125 securities drawn from the S&P SmallCap 600 Index, filtered for growth characteristics. These are companies with market caps roughly between $300 million and $7 billion — the zone where companies are large enough to have proven business models but small enough that sentiment and credit conditions swing the price.

The sector map is unrecognizable from MGK's. Healthcare dominates at 22.66%, followed by Industrials at 16.56%, Financial Services at 16.14%, Technology at 15.55%, and Consumer Cyclical at 9.47%. Tech is the fourth-largest slice, not the majority. This is a diversified small-cap growth fund whose engine is healthcare, industrials, and financials.

Valuation is dramatically cheaper. RZG's blended P/E is 22.64, versus MGK's 36.32. That's a 38% gap on the same basic growth factor. The P/B ratio is 3.84, and return on equity across the portfolio is 18.97%. The portfolio is generating nearly 19 cents of profit for every dollar of shareholder equity — respectable for small-cap growth companies that typically carry more operational risk than their large-cap counterparts.

The cost is higher. RZG's expense ratio is 0.35%, seven times MGK's. On a smaller fund with only $138.8 million in assets, that fee matters more per dollar invested. Over ten years at an 8% gross return, the 0.30% annual fee difference compounds to roughly a 23% shortfall in final value versus the cheaper alternative.

But here's where the momentum story diverges from the cost story. RZG is up 28.92% year-to-date and 37.52% on a rolling one-year basis. That versus MGK's 9.98% YTD and 17.88% rolling return. The small-cap growth trade has been the more aggressive performer over the past twelve months. The RSI at 52.83 suggests the move hasn't gotten euphoric — it's been broad, not parabolic. The price ($70.11) is above its 50-day SMA ($68.81) and well above its 200-day SMA ($60.62). And the 20-day volatility is only 1.35%, much tamer than MGK's 3.40%.

Portfolio role: RZG is your small-cap growth sleeve — the part of the portfolio that benefits from domestic economic expansion, easier earnings comparisons, and the normalization of credit conditions for smaller companies. It has less to do with the AI narrative and more to do with whether the U.S. economy avoids recession and whether smaller companies can execute on growth plans without being crushed by interest expenses.

The Comparison That Matters

The "better buy" question collapses once you look at what each fund is actually asking the market to do.

Valuation factor: RZG wins on price discipline. A 22.64 P/E for growth-oriented small caps is not cheap in absolute terms, but it's materially below what MGK charges for its mega-cap growth exposure. The gap means RZG has more multiple room if small caps continue to close the historic valuation discount they carried into 2026.

Growth trajectory factor: MGK's growth comes from companies that are already dominant. NVIDIA, Apple, Microsoft — the risk is deceleration, not whether these companies can grow. RZG's growth comes from companies still proving they can scale. The risk is execution failure, but the upside is multiple expansion if they succeed.

Profitability quality factor: RZG's 18.97% ROE is the structural evidence that the underlying small-cap growth names are not junk. That number matters because small-cap growth has a history of attracting speculative names that burn cash chasing revenue. An ROE near 19% across 125 holdings suggests the screen is pulling companies with real operating leverage, not just revenue growth.

Momentum factor: RZG's rolling one-year return of 37.52% versus MGK's 17.88% is the most attention-grabbing number in this comparison. The "Great Rotation" of 2026 — where small caps delivered their strongest relative performance against large-cap tech in nearly three decades — has flowed directly into RZG's returns. But the RSI reading of 52.83 says the move hasn't overheated yet. MGK's RSI of 62.89, while still moderate, suggests it's running closer to the upper end of its recent range.

Safety and cost factor: MGK wins on fees by a wide margin. The 0.05% versus 0.35% gap is real and compounding. But RZG's lower volatility (1.35% versus 3.40%) partially offsets the cost disadvantage from a risk-adjusted perspective. You're paying more for RZG, but the ride is smoother.

Concentration risk factor: MGK's top 10 holdings at 63.41% is the structural vulnerability. If mega-cap tech underperforms — and the 2026 rotation narrative suggests exactly that risk — MGK has very little diversification cushion. RZG's 125 holdings spread the bet across healthcare, industrials, financials, and tech.

Whatthe Stack Says to Do

The comparison isn't about picking a winner. It's about knowing which bet you're making.

If you believe mega-cap tech leadership will persist despite the rotation, that concentration in MGK is a feature, not a bug. At 36 times earnings, you're paying for durability and scale. The 0.05% fee means you're not subsidizing that conviction. MGK belongs in the growth sleeve of portfolios that expect technology to keep driving market returns.

If you believe the rotation away from concentrated tech has legs — and 2026's data supports that view, with small caps outperforming large-cap tech for the longest sustained stretch since the mid-1990s — RZG is the more direct vehicle. You're paying a higher fee and accepting the operational risk of smaller companies. In return, you get a cheaper multiple, a healthcare-and-industrials core, and exposure to domestic economic expansion that isn't filtered through the earnings of the same handful of tech giants.

The barbell answer, which is usually the right one when uncertainty is elevated, is both. MGK for the quality-growth core, RZG for the rotation exposure. The two don't duplicate each other. Their correlation will be positive but incomplete, because their sector maps and capitalization exposures are genuinely different.

What would change the call? For MGK, the trigger is earnings deceleration at the mega-cap level — if the "Magnificent Seven" growth rates fall below consensus by a sustained margin, the 36x multiple becomes a anchor, not a crown. For RZG, the trigger is a credit tightening or recession that hits small-cap balance sheets disproportionately. Small caps carry more floating-rate debt. If the Fed stops cutting or, worse, pivots back toward tightening, the cheap multiple disappears quickly.

Every stock in a portfolio needs a named job. MGK's job is concentrated quality growth at the cheapest possible fee. RZG's job is rotation exposure at a reasonable valuation with sector diversification. Neither replaces the other.