2023-12-13 13:07:43 ET
Summary
- Technology sector investing may face mean reversion in 2024 as momentum and valuations take a breather.
- Vanguard Russell 1000 Growth Index Fund ETF Shares is a passively managed ETF that offers broad exposure to the US Large Cap Growth segment.
- The VONG ETF's top holdings are heavily concentrated in the Information Technology sector, with Apple, Microsoft, and Amazon accounting for about 30% of total assets.
I've written about the risks of Technology sector investing in recent writings here on Seeking Alpha given the very real potential that sector mean reversion takes place. Technology propelled growth style investing this year, and was the clear winner of 2023. Technology can continue to do well, but I'm doubtful it outperforms in 2024 as momentum and valuations take a breather. Having said that, that's why Vanguard Russell 1000 Growth Index Fund ETF Shares (VONG), while good at what it does, may not be the ideal place to allocate to.
VONG is a passively managed exchange-traded fund ("ETF") launched on September 22, 2010, by Vanguard. It offers broad exposure to the Large Cap Growth segment of the U.S. equity market. VONG has amassed over $17 billion in assets, placing it among the larger ETFs in its category.
The fund's aim is to mirror the performance of the Russell 1000 Growth Index, which measures the output of large-capitalization growth stocks in the United States. The ETF's annual operating expenses stand at a low 0.08%, making it one of the cost-efficient products in its space.
VONG's Top Holdings
VONG comprises 446 stocks, but its allocations are heavily tilted towards a few key players in the Information Technology sector. The top three holdings as per the latest data are:
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Apple Inc. ( AAPL ): Accounting for about 12.35% of total assets, Apple Inc. is a multinational technology company recognized worldwide for its range of consumer electronics, including the iPhone, iPad, and Mac computers.
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Microsoft Corp. ( MSFT ): Microsoft, the second-largest holding, is a leading global vendor of computer software, hardware, and cloud services.
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Amazon.com Inc. ( AMZN ): Amazon is a multinational technology company focusing on e-commerce, cloud computing, digital streaming, and artificial intelligence. It's the third-largest holding in VONG's portfolio.
These three companies account for about 30.36% of the total assets under management. Personally, I think this is incredible. Talk about the Pareto principle! 3 stocks makes up nearly a third of the portfolio's weighting.
Sector Exposure and Weightings
VONG's sector allocations are heavily skewed towards the Information Technology sector, which accounts for approximately 51% of the portfolio, followed by the Consumer Discretionary and Telecom sectors. This sector composition is strategic, as these industries typically exhibit higher-than-average sales and earnings growth rates.
vanguard.com
However, one must also consider the higher level of volatility associated with growth stocks. While they have a higher likelihood of outperforming their value counterparts in robust bull markets, value stocks tend to deliver better returns across all market conditions.
Pros and Cons of Investing in VONG
Investing in VONG offers several advantages. For starters, it provides broad exposure to large-cap growth stocks, which are typically stable with less risk and more predictable cash flows than mid and small-cap companies. Additionally, the low costs, transparency, flexibility, and tax efficiency of passively managed ETFs like VONG make them ideal vehicles for long-term investors.
On the flip side, the high valuations associated with growth stocks, coupled with their inherent volatility, present significant risks. Moreover, the heavy concentration in the tech sector could expose investors to sector-specific risks.
I get it - relative strength against the broader S&P 500 (SP500) remains intact. I'm just not convinced it will last much longer.
The Road Ahead: To Invest or Not?
While VONG's performance to date has been impressive, the outlook for growth stocks in 2024 remains uncertain. Current high valuations leave little room for error, and many growth stocks, including those within VONG, are priced for perfection. I'd prefer to hold off on Vanguard Russell 1000 Growth Index Fund ETF Shares, though for those that disagree, this is a great fund for exposure to large growth.
For further details see:
VONG: As Good As It Gets For Growth-Style Investing