Stock market indices are formed by grouping companies according to specific criteria and are often used as points of comparison for an investor’s own portfolio.
The most popular and important index is the S&P500, which tracks the 500 largest U.S. public companies. In terms of benchmark, the S&P 500 is THE reference. Given the size and diversity of companies tracked by the S&P 500, it is often used to gauge the health of the U.S. economy and invest in a S&P 500 Fund This means investing in the broader U.S. economy.
Despite the S&P 500 being a great investment option, one ETF has historically proven to be a better investment: the Vanguard Growth ETF (NYSEMKT:VUG). Let’s see why – and whether it could be a wise investment now.
So, what is the Vanguard Growth ETF?
The Vanguard Growth ETF is a large-cap fund focused on companies with above-average growth potential (hence the name). It’s a great way to get the best of both worlds when it comes to stock investing.
On the one hand, you benefit from exposure to companies able to produce market-beating returns. On the other hand, the large size of these companies means that they are generally more established and can help provide more stability during tougher times in the stock market. For perspective, the smallest company in the ETF, Broadband freedomhas a market capitalization of approximately $7.1 billion.
Having larger companies in the ETF is beneficial because many growth stocks are known to be more volatile due to their valuation based on their potential. Although large companies can also be evaluated based on their potential, achieving scale is generally not achieved without establishing a good market position.
Guided by some of the world’s largest companies
Since the Vanguard Growth ETF and the S&P 500 focus on large-cap companies, there is a fair amount of overlap between them, although the former typically only contains around 200 stocks. Below are the overlapping companies in the Vanguard Growth ETF’s top 10 holdings and Vanguard S&P 500 ETF and what share of ETFs they represent:
|
Business |
Vanguard Growth ETF Percentage |
Vanguard S&P 500 ETF Percentage |
|---|---|---|
|
Microsoft |
12.96% |
7.08% |
|
Apple |
10.42% |
5.63% |
|
Nvidia |
8.88% |
5.05% |
|
Amazon |
6.97% |
3.73% |
|
Metaplatforms |
4.45% |
2.42% |
|
Alphabetical class A |
3.67% |
2.01% |
|
Alphabetical class C |
3.03% |
1.70% |
|
Eli Lilly & Co. |
2.77% |
1.40% |
Sources: Avant-garde. Percentages as of March 31.
Having 10 companies represents almost 57% of an ETF (Visa is 1.78%), this is not a billboard for diversification, but it makes sense given that the Vanguard Growth ETF is market cap weighted and many of the The fastest-growing companies we’ve seen explode in value over the past decade have been technology companies.
The technology sector represents more than 56% of the Vanguard Growth ETF. So it’s not quite the one-stop shop that an S&P 500 ETF is, but it can be a foundational part of a portfolio that investors supplement with other sector- or company-specific ETFs.
Consistent outperformance of the US stock market
Whatever the similarities or differences between…
