Introduction
The Vanguard S&P500 Growth ETF (NYSEARCA:VOOG) is a best-in-class low fee ETF that invests in large-cap S&P500 growth companies. Approximately half the fund is invested in technology stocks, with the other half invested in other sectors. The fund charges an expense ratio of just 0.10% and has over $4 billion in assets under management.
Source: Unsplash
Portfolio Construction and Holdings
VOOG invests only in companies that are in the S&P500. This means that large-cap companies like Tesla (TSLA), which is not currently in the S&P500, will not be found inside this fund. The fund holds 281 holdings in total, but is quite concentrated in the top 10, as you'll see below.
This ETF invests about 50% of its assets in the technology sector. This isn't much of a surprise seeing as the technology sector is where a significant portion of market growth can be found. Consumer cyclicals make up the second-largest sector of holdings from the fund at 17.5%. Healthcare also contains numerous growth stocks and weighs in here at 10.40%, although I wouldn't be surprised if some healthcare stocks were being counted as technology companies. Industrials and financials make up 8.28% and 5.78% of the fund respectively. Finally, consumer non-cyclicals, basic materials, utilities, and energy account for a combined 7.32% of the fund. The sector allocation in an ETF like VOOG is the main differentiator compared to an ETF like the Invesco QQQ Trust ETF (QQQ), which shares many of the top holdings, but holds much fewer sectors and is heavier in technology. VOOG may be a solid play for those looking for a bit less technology exposure.
Source: ETF.com Overview
As for individual holdings, the mega-cap technology names dominate the list. Apple (AAPL) comes in at spot #1 with nearly 12% of the fund. Microsoft is second at just under 10%. Amazon (AMZN) is a close third at 8.11%. After the top 3, the weightings start to drop off with Facebook (FB) at 3.95% of the fund. Alphabet Class A (GOOGL) shares sit at 2.72% and Alphabet Class C (GOOG) shares are weighted at 2.7%. Visa (V), Nvidia (NVDA), and Mastercard (MA) nearly reach 2% each. Finally, Adobe just squeezes into the top 10 at a 1.38% weighting.
These stocks are clearly the dominant technology names over the last decade. They have done extremely well in the past, and while I think they should continue to see solid returns, I doubt they'll be able to achieve the same returns going forward. Nonetheless, I believe these companies will remain leaders for quite some time and will still be able to put up solid returns for investors.
Superb Performance
VOOG has consistently outperformed the SPDR S&P 500 ETF Trust (SPY) by a substantial amount over the last decade or so, but remains in between directly competing ETFs in the iShares S&P 500 Growth ETF (IVW) and the SPDR S&P 500 Growth ETF (SPYG).
Data by YCharts
Interestingly enough, VOOG's fee also sits right between SPYG And IVW. SPYG charges just 0.04%, while IVW charges a significantly higher 0.18%. This fee is likely one of the main contributors to the slight differences in performance between these funds. This makes SPYG look quite attractive. Keep in mind though that Vanguard tends to give investors the most information on their website regarding their ETFs, so that extra fee may be worth it for some.
Conclusion
The Vanguard S&P500 Growth ETF is a solid way for passive investors to gain exposure to the highest growth S&P500 stocks. These tend to be large caps that are leaders in their space. Generally, one doesn't always think of profitability alongside growth, but many of the top companies held by this ETF are extremely profitable (such as Apple, Microsoft, and Facebook).
The stocks held by this ETF have had a huge run over the last few years. While it's possible they continue to put up incredible returns going forward, it remains unlikely that the next decade will see shareholder wealth grow as much as the last decade. Still, positive returns should be found by those buying this ETF for the long term.
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This article was written by
Lukas Wolgram
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Check out my FREE substack newsletter Uncommon Profits here: https://lukewolgram.substack.com . Ranked #1 on Tip Ranks top 25 financial bloggers for accuracy as of January 1, 2021. I focus mostly on high quality small and microcap companies that I believe can double their stock price within 3 years (26% hurdle rate).
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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