Choosing the Right Growth ETF

When markets are in disarray, we look to professionals for guidance.

And there’s no better way to do that than seeing which stocks and ETFs money managers are researching.

According to our TrackStar data, growth ETFs have gotten more attention in the last two weeks, with Vanguard’s Growth ETF VUG standing out among them.

In the past, we’ve found thematic strategy ETFs like dividends don’t perform as well as the broader market.

But hold on to your hats because that’s about to change…

Key Facts About VUG

• Net assets: $124.7 billion
• 12-month trailing yield: 0.55%
• Inception: January 26, 2004
• Expense ratio: 0.04%
• Number of holdings: 190

What do you get when you combine the low costs from Vanguard with a growth-oriented portfolio?

The Vanguard Growth ETF VUG.

This ETF owns large-cap companies within the growth sector of the U.S. equity market determined by the CRSP U.S. Large Cap Growth Index.

Companies are selected based on growth factors, including earnings, sales, return on equity, and cash flow generation, with a $10 billion minimum market capitalization.

Source: Vanguard

VUG holds many of the same stocks as the S&P 500. However, the total portfolio contains just 190 stocks compared to the 500 in the S&P 500.

Source: Vanguard

Additionally, the VUG is even more heavily weighted towards technology companies since those often display the most growth potential.

Lastly, it’s worth noting the ETF has nearly $125 billion under management, an enormous sum compared to many other ETFs.

Performance

Since its inception, the VUG ETF has done exceptionally well, keeping close to its benchmark.

Overall performance has averaged 11.34% annually, with the ETF doing much better over the past several years.

Source: Vanguard

We should also point out that the VUG has outperformed the S&P 500 over the past 5-years.

Competition

While VUG is an outstanding choice for a growth-oriented ETF, there are several others actively searched by financial pros we wanted to highlight.

• Vanguard Russell 1000 Growth ETF (VONG): Targets top U.S. large-cap growth stocks, tracking the Russell 1000 Growth Index with a market cap weighting, emphasizing high-growth companies.
• iShares Edge MSCI USA Quality Factor ETF (QUAL): Invests in U.S. stocks with high ROE, stable earnings, and low debt, tracking the MSCI USA Quality Index, focusing on quality over pure growth.
• WisdomTree U.S. Dividend Growth Fund (DGRW): Blends growth with income, investing in high-quality U.S. companies with robust earnings and dividend growth, tracking the WisdomTree U.S. Quality Dividend Growth Index.
• Vanguard Small Cap Growth ETF (VBK): Captures high-growth potential in U.S. small-cap stocks, tracking the CRSP US Small Cap Growth Index with a market cap weighting, targeting emerging growth leaders.

We found it rather interesting that VONG outperformed VUG as ETFs with more diversification tend to underperform. However, the overall difference isn’t significant.

What’s also noticeable here is how badly small-cap companies underperformed, a common theme we’ve seen across the markets in the past decade.

Our Opinion 10/10 

VUG is an excellent ETF for achieving outperformance. It combines high liquidity and low expenses while seemingly selecting the best of the S&P 500 stocks.

While the narrow focus on technology might be concerning, the weighting will change should other sectors start kicking into high gear.