2023-04-24 17:16:45 ET
Summary
- Vanguard Growth Index Fund ETF Shares is an excellent choice for investors who want to gain exposure to growth, specifically to tech and consumer discretionary sectors without having to pick individual stocks.
- With a low expense ratio, diversification, and strong historical performance, VUG is a compelling option for those who want to invest in tech for the long term.
- However, it's important to keep in mind that investing always comes with risks. Tech stocks can be volatile and subject to rapid price fluctuations.
Summary
When it comes to investing in U.S. growth stocks, you'll likely have significant tech and consumer discretionary sector exposure, and there are plenty of funds to choose from. Starting with the benchmark, there are a few options that funds typically track:
- CRSP U.S. Large Cap Growth Index: This index includes U.S. companies that comprise the top 85 percent of investable market capitalization. More details can be found here.
- Dow Jones U.S. Large-Cap Total Stock Market Index: The index, a member of the Dow Jones Total Stock Market Indices family, is designed to measure the performance of large-cap U.S. equity securities. Compared to CRSP U.S. Large, it has more exposure to financials. More details can be found here.
- MSCI USA Large Cap Index ((USD)): The index covers approximately 70% of the free float-adjusted market capitalization in the U.S. More details can be found here .
While these benchmarks can appear to be very similar on paper, performance has been different. For example, the difference in total return between CRSP US Large Cap and Dow Jones US Large Cap has been around 1.5% over the last 3 years.
I wanted to point out this difference because U.S. growth ETF performances can differ by quite a bit, simply because they have different benchmarks and rebalancing methodologies. In my opinion, Vanguard Growth Index Fund ETF Shares ( VUG ) stands out from the crowd against S&P 500 Growth ETFs, and I want to examine a few reasons why.
- Low Expense Ratio: VUG's expense ratio is one of the lowest in the industry, at just 0.04%. This means that for every $10,000 you invest in the fund, you'll pay just $4 in expenses per year. Lower expenses mean that more of your money stays invested in the fund, which can compound over time and lead to significant gains.
VUG Expense Ratio vs. Other S&P 500 Growth ETFs
Security Name | Expense Ratio |
Vanguard Growth ETF ((VUG)) | 0.04% |
iShares S&P 500 Growth ETF ( IVW ) | 0.18% |
SPDR® Portfolio S&P 500 Growth ETF ( SPYG ) | 0.04% |
- Diversification: VUG offers investors exposure to a broad range of tech companies, including some of the largest and most innovative companies in the industry. The fund holds 241 stocks as of 3/31/23, with the largest holdings being companies like Apple Inc. ( AAPL ), Microsoft Corporation ( MSFT ), and Amazon.com, Inc. ( AMZN ). VUG's holdings cover a range of subsectors within tech, including software, semiconductors, and e-commerce. This diversification can help reduce risk and increase the chances of long-term success. A detailed holdings report can be found on the fund overview page here . IVW and SPYG both only hold 231 stocks.
- Strong Historical Performance: VUG has outperformed its S&P 500 growth peers (SPXG, IVW, SPYG) over the last 3 years, with a total return of 43.51%. In comparison, the average annual return for other growth-focused funds over the same period was around 42.15%. VUG's strong performance can be attributed to its diversified holdings, low expense ratio, and skilled management.
S&P 500 Growth 3-Year Returns
Risks
For further details see:
VUG: Historically A Better Option Than S&P 500 Growth