Comparing SLYG and ISCG: Which Small-Cap ETF Offers the Best Dividend Strategy?

When evaluating best etfs for dividends in the small-cap growth category, investors often find themselves comparing SLYG (State Street SPDR S&P 600 Small Cap Growth ETF) and ISCG (iShares Morningstar Small-Cap Growth ETF). Both funds target U.S. small-cap growth stocks but employ distinctly different strategies in fee structure, dividend distribution, and portfolio composition. Understanding these differences can help you determine which fund aligns better with your income generation goals and risk tolerance.

Cost Structure: ISCG’s Fee Advantage vs SLYG’s Dividend Appeal

The expense ratio represents one of the most significant long-term cost drivers for ETF investors. ISCG charges just 0.06% annually, less than half of SLYG’s 0.15% fee. Over decades of investing, this cost differential can meaningfully impact your total returns. For an investor with $10,000 in either fund, the annual fee difference amounts to $9—a seemingly small amount that compounds substantially over time.

Regarding dividend yield, SLYG edges ahead at 0.86% compared to ISCG’s 0.61%. While neither fund delivers exceptional income-generating returns, SLYG’s higher distribution rate may appeal to investors prioritizing current dividend income alongside growth. However, SLYG’s higher expense ratio partially offsets its yield advantage, meaning investors must weigh fee savings against modestly higher payouts when selecting between these funds.

As of early January 2026, ISCG managed $807.86 million in assets under management, while SLYG held substantially more at $3.6 billion. The larger asset base of SLYG may provide slightly better liquidity and tighter bid-ask spreads, though both funds remain sufficiently liquid for most retail investors.

Portfolio Composition and Sector Exposure

The two funds take markedly different approaches to building their small-cap portfolios. ISCG tracks a comprehensive basket of 971 U.S. small-cap growth stocks, creating broader diversification but reduced concentration risk. SLYG adopts a more selective strategy, holding only 334 stocks while tracking the S&P SmallCap 600 Growth Index.

Sector allocation reveals interesting divergences. ISCG maintains heavier exposure to industrials at 26%, followed by technology at 18% and healthcare at 17%. SLYG’s sector weighting tilts toward industrials (20.5%), technology (19%), and healthcare (16%)—a relatively similar pattern but with less pronounced industrial emphasis. This difference reflects ISCG’s broader selection methodology versus SLYG’s index-tracking discipline.

Top holdings illustrate each fund’s strategy. ISCG’s largest positions, such as Lumentum Holdings, Kratos Defense and Security Solutions, and ATI, each represent less than 1% of assets, reflecting genuine diversification. SLYG’s leading holdings—TTM Technologies, Advanced Energy Industries, and Sanmina—maintain slightly larger individual positions, reflecting a more concentrated approach. For investors concerned about single-stock risk, ISCG’s 971-stock composition offers substantially more protection.

Performance Metrics: Returns, Risk, and Drawdowns Over Five Years

Historical performance reveals significant differences in volatility and downside protection. Over the trailing twelve months (as of January 9, 2026), ISCG demonstrated substantially stronger performance with an 18.02% total return versus SLYG’s 8.96%. This outperformance suggests ISCG’s broader exposure to certain growth dynamics or sector allocation benefited from recent market conditions.

However, examining longer-term risk tells a more complex story. Over five years, SLYG experienced a maximum drawdown of -29.17%, while ISCG suffered through a steeper -41.49% peak-to-trough decline. This nearly 12-percentage-point disadvantage represents meaningful capital loss exposure during market stress. An investor who placed $1,000 into each fund five years prior would see SLYG appreciate to approximately $1,210, while ISCG would reach $1,095—a difference of $115 despite ISCG’s superior one-year return.

This performance divergence reflects small-cap volatility dynamics: broader portfolios like ISCG’s can amplify market downturns during sector-wide selloffs, while SLYG’s concentration in higher-quality growth criteria may provide modest downside cushioning.

Choosing the Right Fund for Your Dividend Income Goals

Selecting between SLYG and ISCG depends on your specific investment objectives and risk profile. Investors prioritizing cost minimization should gravitate toward ISCG, whose 0.06% expense ratio substantially undercuts SLYG. This becomes particularly advantageous for buy-and-hold investors with multi-decade time horizons, where fee compression significantly enhances wealth accumulation.

For those specifically seeking best etfs for dividends combined with growth, SLYG presents a compelling case despite its higher fees. The 0.86% dividend yield, while modest, exceeds ISCG’s 0.61% payout and may suit investors building portfolio income streams. Additionally, SLYG’s lower historical volatility—evidenced by the smaller maximum drawdown—appeals to investors with lower risk tolerance or shorter time horizons.

A balanced approach worth considering: some investors might allocate a portion to each fund, capturing ISCG’s cost efficiency and broader diversification while supplementing income through SLYG’s higher dividend distribution. This hybrid strategy balances fee concerns against yield objectives while maintaining small-cap growth exposure across complementary portfolios.

For all small-cap investors, remember that these securities typically exhibit greater volatility than large-cap alternatives, featuring market caps between $250 million and $2 billion. This elevated risk profile means small-cap funds suit investors with adequate emergency reserves, extended time horizons, and conviction in growth strategies.