How a few hot stocks can make 'twin' funds behave as if there is no connection between them
Index funds that appear to invest in the same way are showing very different performances this year due to portfolio composition differences.
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The 'Intelligent Investor' column by Jason Zweig has been published in The Wall Street Journal for about a decade and is published exclusively in Globes. According to Zweig: "My goal is to help you distinguish between good advice and that which only sounds good." The column took a break for several months to write a book, and now it returns in a weekly format.
About Jason Zweig
One of the senior journalists of The Wall Street Journal. Author of the book "Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich," and editor of the updated version of the bestseller "The Intelligent Investor," which was defined by Warren Buffett as "the best book on investing ever written."
The "identical twins" of the stock market are starting to look like complete opposites. One might think that funds tracking the same market segment would yield identical returns, but they do not.
Just look at exchange-traded funds (ETFs) that invest in large, fast-growing American companies. Although they all hold many stocks in the technology and artificial intelligence sectors, such as Alphabet or Nvidia, the returns they have shown recently differ dramatically from one another.
Since the beginning of 2026, the performance gaps between ETFs tracking large-cap growth indices managed by Invesco, iShares, State Street, and Vanguard are enormous. The iShares Russell 1000 Growth ETF rose by 4.6%, while the Invesco S&P 500 Pure Growth surged by 24.3%. Among leading ETFs focusing on value stocks, the gap between the best-performing fund and the worst-performing one stands at 11 percentage points this year.
For investors, this is a reminder of two basic principles: you cannot judge a fund by its name alone, and even a slight deviation from the broadest exposure to the stock market can yield surprisingly different results.
The biggest differences stem from very few stocks
In recent years, there has been endless talk about the stock market becoming too concentrated, with a handful of giant companies holding an especially large weight in it. Another point receives less attention: the more you divide the stock market into narrower segments, the more concentrated each one becomes. Investing in an index of growth or value stocks of large companies, instead of a fund holding stocks from the entire market, reduces diversification and increases the risk that a handful of stocks will lead to outlier results in the short term.
"The biggest differences this year do not stem from differences in their exposure to different sectors or industries in the market," says Matthew Bartolini, head of global research strategy at State Street Investment Management. "They stem from a few stocks only. Very few."
Take, for example, Micron Technology and SanDisk. Until the end of June, both were included in the Russell 1000 Value index, then moved to the growth index. Because the book-to-market ratio has a lot of weight in Russell's definition of a value stock, these companies received a relatively high score. Thus, Micron's 188.6% rise and SanDisk's 411.8% surge were responsible for a fifth of the total return of the Russell 1000 Value index during this period.
The most common trap
"People should expect that different definitions will lead to different results," says Jay Jacobs, head of US equity ETFs at BlackRock. The Invesco S&P 500 Pure Growth fund holds only a few dozen stocks that received the highest scores for long-term growth. It rose by 24.3% this year, far outperforming others.
Do you even need to divide your investment portfolio into growth stocks and value stocks? Dividing the market into two and investing in both halves is very similar to investing in the entire market to begin with. However, using growth and value funds that track indices from different providers is a bad idea. Differences in criteria and schedules could leave you with an investment portfolio made of patches.
"Do not mix them," warns Katie Klert, who heads equity index strategy at Vanguard. "In my opinion, this is the most common trap we see. Overlaps in exposure could be created, or alternatively, gaps in exposure, without you being aware of it." Even categories that sound simple and clear in the long term can turn in the short term into a gamble in every sense.
