ETFs
3 Vanguard ETFs that outperformed the S&P 500 and Nasdaq Composite over the past year
Vanguard ETFs are an inexpensive way to get diversification and exposure to major stocks.
If you choose individual stocks or sectors rather than a general stock index, it’s probably for some reason. Maybe it’s because you think you can outperform the major benchmarks. Or it could be that you want more control over what you own. Or maybe you want to target a certain theme or trend, or a strategy like growth, value, or passive income stocks.
Investors looking for ETFs that have outperformed both S&P500 and the Nasdaq Composite over the past year have arrived at the right place. Here’s a closer look at the Vanguard Growth ETF (VUG -0.17%), Vanguard Mega Cap Growth ETF (M.G.K. -0.19%), and the Vanguard Communications Services ETF (VOX -0.33%). Let’s take a look at why they outperform benchmarks and each fund’s buying case.
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1. Vanguard Growth ETF
The Vanguard Growth ETF is up 37.3% over the past year and an even better 59.1% since the start of 2023. One look at its holdings and it’s easy to see why.
More than half of the Vanguard Growth ETF is concentrated in the “Magnificent Seven”, a group of seven technology-focused companies that includes Microsoft, Apple, Nvidia, Amazon, Alphabet, MetaplatformsAnd You’re here.
Even though Microsoft, Tesla and Apple have underperformed the Nasdaq Composite over the past year, the group as a whole still crushed the index thanks to big gains from Nvidia, Meta Platforms, Amazon and Alphabet.
Basically, any fund heavily focused on Nvidia has a good chance of beating the benchmarks over the past year given that it is a large company that recorded monster gains.
The Vanguard Growth ETF includes many other growth stocks from various sectors. With $224 billion in net assets and an expense ratio of 0.04%, it is one of the largest and least expensive ways to invest in growth stocks.
2. Vanguard Mega Cap Growth ETF
If you think the top mega-cap growth companies will continue to lead the market higher, consider the Vanguard Mega Cap Growth ETF.
The ETF is very heavy, with 76% of the fund concentrated in the top 20 stocks and a whopping 87% of the fund in technology, consumer discretionary or healthcare stocks.
The danger with an ETF like this is that only a few companies can move the entire fund. For example, if Microsoft and Apple take a hit, there’s a good chance that other top tech stocks like Selling power And Adobe will do it too. A strong Nvidia selloff would likely have an impact Advanced microsystems and other chip stocks.
The fund’s top holdings are the usual suspects of top growth stocks. But some names might surprise you, like Costco wholesale, McDonaldsAnd Boeing. With only 79 holdings, the fund is more concentrated than other Vanguard funds. For example, the Vanguard Growth ETF has 199 holdings.
Between the Vanguard Growth ETF and the Vanguard Mega Cap Growth ETF, the Vanguard Growth ETF emerges as the better option for investors looking for high-growth stocks and greater diversification. But the Vanguard Mega Cap Growth ETF is the best solution if you want even more exposure to largest growth-oriented companies instead of a larger variety including smaller (but still important) growth stocks.
With an expense ratio of 0.07%, the fund remains a low-cost ETF.
3. Vanguard Communication Services ETF
The Vanguard Communications Services ETF tracks the performance of the communications sector, which is doing extremely well.
Communications is one of the most misunderstood sectors in the market. When thinking about communications, it could be movies and entertainment, media, telecommunications companies, cable and satellite companies, etc. And while these companies certainly make up a significant portion of the fund, the sector is dominated by Meta Platforms and Alphabet. Together, they represent 45.8% of the Vanguard Communications Services ETF.
Meta platforms and Alphabet have been crushing the market recently. But what makes both stocks particularly attractive is that they are cash cows with growth potential, they are not overvalued and both recently announced that they will will start paying dividends.
Meta did a masterful job monetizing artificial intelligence (AI), notably via Instagram. And Alphabet, which was sharply reduced compared to the S&P 500 just a few months ago, proved in its most recent quarter why it is a high-octane cash generator with explosive growth potential in AI.
Perhaps the most attractive thing about Meta and Alphabet is that they are inexpensive, even after their recent surges. Despite their high growth rates, both companies have the lowest forward price-to-earnings ratios of the Magnificent Seven stocks.
MSFT PE Ratio (Forward) data by Y Charts
Investors looking for the value side of the Magnificent Seven, who also want exposure to high dividend stocks and proven media winners, might consider the Vanguard Communications Services ETF and its reasonable 0.1% expense ratio.
Go with the hot hand
There are always risks associated with accumulating what works in the market. Stocks or ETFs that have crushed benchmarks have typically seen their valuations stretched. A significant upside is great for existing shareholders, but those considering buying the shares now need to make sure they are doing so for the right reasons, including because they believe the competitive advantages are here to stay.
There is reason to believe that mega-cap growth and the Magnificent Seven can continue to beat the S&P 500 and even the Nasdaq Composite for the simple fact that they have ample resources and tend to be able to sustain significant capital, research and research expenditures. development expenditure. In comparison, a small business needs to be more specific and is likely more interested in a particular theme, idea, product or service. A margin for error is crucial when entering the AI frontier or experiencing a slowdown in growth, as in the case of Apple or Tesla.
Vanguard ETFs remain a great, inexpensive way to get exposure to what suits your personal investment goals or interests. The three funds on this list are just a starting point for outperforming ETFs, but there are many other options to choose from also.
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. Randi Zuckerberg, former director 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. Daniel Foelber offers the following options: July 2024 long calls at $180 on Advanced Micro Devices. The Motley Fool holds positions in and recommends Adobe, Advanced Micro Devices, Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, Salesforce, Tesla, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.