ETFs
2 Unstoppable Vanguard ETFs to Buy at $700 During the S&P 500 Bull Market
The stock market is trading at a record high, led by some of the biggest U.S. technology stocks.
THE S&P 500 (^GSPC 0.27%) is a market-cap-weighted index, meaning that the largest of its 500 constituents has a greater influence on its performance than the smallest. The index returned 15% in the first half of 2024, but a substantial portion of that return came from a handful of large-cap technology stocks.
Nvidia, Microsoft, Apple, AmazonAnd Meta-platforms represent more than a quarter of the total value of the S&P 500 and together have returned an average of 49.7% in 2024 so far.
In other words, investors who aren’t holding these stocks are likely underperforming the broader market, but that doesn’t mean they should jump into them right now. It might be better to buy a tech-focused exchange-traded fund (ETF) or two, as they can offer a more diversified way to ride the wave of high-growth trends like artificial intelligence (AI).
Here’s why investors with spare cash might want to allocate $700 to buying a share of the company. Vanguard Mega Cap Growth ETF (MGK 0.39%), and an action of the Vanguard Growth ETFs (VUG 0.44%).
1. Vanguard Mega Cap Growth ETF
The Vanguard Mega Cap Growth ETF can give investors diversified exposure to the largest U.S. growth companies. It holds 78 different stocks from 10 different sectors, including consumer discretionary, healthcare, industrials, and financials. But the technology sector dominates them all, making up 60% of the entire fund.
In fact, eight of the ETF’s top ten holdings operate in the technology sector:
| 1. Microsoft | 14.43% | 6. Eli Lilly | 3.4% |
| 2. Apple | 13.14% | 7. Alphabetical class A | 3.05% |
| 3. Nvidia | 12.08% | 8. Alphabet Class C | 2.52% |
| 4. Amazon | 7.61% | 9. You’re here | 2.35% |
| 5. Meta-platforms | 4.55% | ten. Visa | 2.1% |
Data source: Vanguard. Portfolio weights are accurate as of May 31, 2024 and are subject to change.
Microsoft took a leading position very early in AI Softwarepartly thanks to deals to invest $13 billion in OpenAI, the creator of ChatGPT. Microsoft used OpenAI’s technology to create its Copilot virtual assistant, which is now integrated into flagship products like Windows and 365 (Word, Excel, PowerPoint, etc.).
Apple has also partnered with OpenAI to create its new artificial intelligence software Apple Intelligence, which will be launched in September on the iOS 18 operating system. With 2.2 billion active devices worldwide (led by the flagship iPhone), Apple is positioning itself to become the largest distributor of AI to consumers.
None of this would be possible without Nvidiawhich makes the most powerful data center chips for developing AI models. It was working with OpenAI as early as 2016 and now simply can’t keep up with demand for chips from both tech giants and startups.
The Mega Cap ETF holds a number of other AI stocks outside its top 10, in addition to non-tech giants like Walt Disney, McDonaldsAnd Boeing — although each of these names represents less than 1% of the total portfolio value.
The Mega Cap ETF has generated a compound annual return of 13.1% since its inception in 2007, eclipsing the S&P 500’s average annual return of 9.9% over the same period. Most Wall Street estimates suggest AI will generate trillions of dollars to the global economy over the next decade, and if so, large-cap technology stocks will likely continue to outperform the rest of the market.
This ETF is a very attractive proposition in this scenario. However, if AI fails to live up to expectations, investors should be aware that its high concentration of AI-focused stocks could lead to a period of underperformance.
2. Vanguard Growth ETF
The growth of the avant-garde FNB is a more diversified option for investors. It holds 199 different stocks, and while technology still makes up 58% of the portfolio, other sectors like healthcare, industrials, and financials have slightly higher weightings than the Mega Cap Growth ETF.
As the table below shows, this ETF has the same top 10 holdings as the Mega Cap ETF, except the portfolio weights are smaller:
| 1. Microsoft | 12.6% | 6. Eli Lilly | 4.13% |
| 2. Apple | 11.51% | 7. Alphabetical class A | 3.41% |
| 3. Nvidia | 10.61% | 8. Alphabet Class C | 2.88% |
| 4. Amazon | 6.72% | 9. Tesla | 1.98% |
| 5. Meta-platforms | 4.21% | 10. Visa | 1.72% |
Data source: Vanguard. Portfolio weights are accurate as of May 31, 2024 and are subject to change.
The Growth ETF has generated a compound annual return of 11.5% since its inception in 2004, which exceeds the S&P 500’s average annual return of 9.9% over the same period.
However, it underperformed the Mega Cap ETF over a one-year, five-year, and 10-year time horizon because it is not as concentrated. In other words, the fund that assigned a higher weighting to stocks like Nvidia over the past year, for example, will have generated a higher return.
Conversely, actions like Nvidia would collapse (theoretically) If AI is not as revolutionary as Wall Street expects, the Growth ETF could suffer less downside in this scenario compared to the Mega Cap ETF.
Both Growth and Mega Cap ETFs are incredibly cheap to own. They have expense ratios of 0.04% and 0.07%, respectively, compared to other funds in the industry which, according to Vanguard, can charge as much as 0.95%. This can have a negative impact on long-term returns.
The combination of these two ETFs can offer investors a high degree of exposure to the technology and AI stocks currently fueling the S&P 500 bull market, with some diversification in the event of a changing of the guard in market leadership.
Randi Zuckerberg, former head of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds-Vanguard Growth ETF, Visa, and Walt Disney. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a position in the stocks mentioned and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds-Vanguard Growth ETF, Visa, and Walt Disney. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. disclosure policy.