Sometimes, two exchange-traded funds (ETFs) are so much alike that it's hard to tell them apart, let alone decide which one is better. The best Vanguard ETFs tend to have some good things in common, like low fees and broad diversification. And some Vanguard funds are almost identical, in name and in performance.
If you want to invest in growth stocks, two of Vanguard's ETFs can fit that strategy. The Vanguard S&P 500 Growth ETF (VOOG 3.79%) and the Vanguard Growth ETF (VUG 3.62%) both offer portfolios of U.S. growth stocks. Their top holdings of major tech names are only slightly different, and over the long run, these two different funds have delivered almost exactly the same returns.
VOOG Total Return Level data by YCharts.
So far this year, one fund is doing a bit better than the other. The Vanguard S&P 500 Growth ETF is up 13.8% year to date, outperforming the S&P 500 index, while the Vanguard Growth ETF is up only 10.2%, slightly underperforming the stock market benchmark.
Despite their similarities, one of these Vanguard growth ETFs might be a clear favorite for your portfolio. Let's see which one stands out.
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Vanguard S&P 500 Growth ETF (VOOG): 145 stocks, 15 years of 17.2% annualized returns
The Vanguard S&P 500 Growth ETF holds 145 stocks that are focused on U.S. companies with high potential for investment growth. Its expense ratio is 0.07%, making this a low-cost index fund, even if its fees are not quite as low as some other Vanguard funds.
This fund has delivered annualized returns of 17.2% for more than 15 years since its inception in September 2010. That includes average annual returns of 16.2% for the past five years, 29.2% for the past three years, and almost 36% last year.
NYSEMKT: VOOG
Key Data Points
As a U.S. growth ETF, it's no surprise to see that this fund is heavily invested in tech stocks. As of April 30, 49.2% of the fund's top five holdings by sector are in technology, followed by communication services (17.6%), consumer discretionary (9.3%), financial stocks (8.9%), and industrials (6.7%). The fund's top five stock holdings (as of April 30) are familiar tech names:
- Nvidia: 14.6% of the fund
- Alphabet: 12.1% combining Class A and Class C shares
- Microsoft: 9.1%
- Apple: 5.98%
- Broadcom: 5.94%
This is a low-cost tech stock ETF that is slightly less tech-heavy than the Invesco QQQ Trust (QQQ 4.80%) -- which had a sector weighting of about 64% tech stocks as of April 30.
Vanguard Growth ETF (VUG): 153 stocks, 22 years of 12.3% annualized returns
The Vanguard Growth ETF consists of 153 stocks, but its holdings are even more tech-heavy than the Vanguard fund listed above. Its tech sector weighting is 67.8% of the portfolio, making it even more of a concentrated bet on tech than the S&P 500 ETF.
Most of the time, having more assets in tech stocks is not a bad thing. This fund has delivered annualized returns of 12.3% for more than 22 years since its inception in January 2004. This includes average annual returns (by net asset value) of 15.3% for the past five years, 27.3% in the past three years, and 30.6% last year.
NYSEMKT: VUG
Key Data Points
The fund's top five stock holdings are the same names -- in almost the same order -- as the other Vanguard ETF:
- Nvidia: 13.33% of the fund
- Alphabet: 11.6%, combining Class A and Class C shares
- Apple: 11.5%
- Microsoft: 8.8%
- Broadcom: 5.2%
The Vanguard Growth ETF has an ultra-low expense ratio of 0.03%.This fund ranks among the best Vanguard ETFs and is an easy way to own some of the fastest-growing tech stocks. So why am I not recommending it?
Why buy one instead of the other
Both of these Vanguard growth ETFs are good choices in many ways. I don't own either fund, but if I were going to buy one, it would be the Vanguard S&P 500 Growth ETF. That's because it's a little more diversified across sectors, and less tech heavy. In case there is a tech downturn, this fund might perform better than the Vanguard Growth ETF, which is almost 68% tech stocks.
Looking at these funds' performance in 2022, the last time there was a big bear market in tech stocks, both delivered about the same losses as the tech-heavy Nasdaq 100 index, which lost about 29% that year.
VOOG Total Return Level data by YCharts.
But the Vanguard S&P Growth ETF outperformed the other Vanguard ETF by about 3.7% percentage points. This could be a sign that the fund will hold up a bit better in case of future drawdowns in the tech sector.
Also, the Vanguard S&P Growth ETF has a slightly cheaper price-to-earnings ratio: 33.5, compared to 36.8 for the Vanguard Growth ETF. If you're going to buy almost the same mix of stocks, you might as well choose the undervalued version.
