ETFs
$5,000 in this Vanguard ETF costs just $4 in annual fees and it beat the S&P 500 and Nasdaq Composite in 2024
Exchange-traded funds (ETFs) can be excellent passive income vehicles, especially when they are inexpensive. Take into account Vanguard Russell 1000 Growth ETF (NASDAQ:VONG). Its expense ratio is just 0.08%, meaning $5,000 invested in the fund would only incur $4 in fees per year.
The ETF hit an all-time high on Wednesday, alongside a broader market rally. It’s one of Vanguard’s best-performing funds so far this year, up a whopping 19.3%, compared to a 17.7% return for the Vanguard fund. Nasdaq Composite and 14% for S&P500.
Here is an introduction to exchange traded fund and why it might be worth buying it now.
Image source: Getty Images.
A large-scale exhibition with a view to growth
THE Russell 1000 is a market capitalization-weighted index that includes the 1,000 largest U.S. companies. Given the very large nature of the market, the Russell 1000 index encompasses approximately 93% of the total market capitalization of U.S. stocks.
The Vanguard Russell 1000 Growth ETF essentially takes this candidate pool and narrows it down to the most growth-oriented companies. It includes 440 stocks, less than half of the Russell 1000. Here’s a look at the sector allocation of the Vanguard Russell 1000 Growth ETF compared to the Vanguard Russell 1000 ETF (NASDAQ:VONE).
|
Technology |
53.4% |
32.8% |
|
Discretionary consumption |
18.8% |
14.1% |
|
Health care |
10.2% |
11.7% |
|
Industrial |
9.7% |
12.9% |
|
Consumer Staples |
2.6% |
4.8% |
|
Financial datas |
2.5% |
10.8% |
|
Real estate |
0.8% |
2.4% |
|
Telecommunications |
0.6% |
2% |
|
Energy |
0.6% |
4.1% |
|
Basic materials |
0.4% |
1.8% |
|
Utilities |
0.4% |
2.6% |
Data source: Vanguard.
As you can see in the table, the Vanguard Russell 1000 Growth ETF has significantly lower weightings in value-oriented sectors like financials. More than 70% of the fund is concentrated in technology and consumer discretionary, compared to less than 50% for the Russell 1000.
Other Vanguard Growth Funds to Consider
The Vanguard Russell 1000 Growth ETF looks a lot like Vanguard’s largest growth fund in terms of net assets – the Vanguard Growth ETF (NYSEMKT:VUG). The Vanguard Growth ETF essentially selects the most growth-oriented companies in the S&P 500. So it’s a similar approach to the Vanguard Russell 1000 Growth ETF – just more concentrated in the larger companies.
It has 200 components and a slightly lower expense ratio of 0.04% compared to 0.08% for the Vanguard Russell 1000 Growth ETF. The difference is minor unless you invest hundreds of thousands of dollars in these funds.
The story continues
Ultimately, the best Vanguard growth fund for you depends on desired concentration in larger companies rather than diversification into a larger number of choices. For example, there is also the Vanguard Mega Cap Growth ETF (NYSEMKT: MGK) — which only has 79 stocks and focuses even more on the most valuable US growth stocks by market capitalization. But as you can see in the chart, the Vanguard Russell 1000 Growth ETF, Vanguard Growth ETF, and Vanguard Mega Cap Growth ETF have all performed similarly this year.
MGK Chart
An interesting passive income game if you can handle the volatility
The dominant trend of 2024 has been the growth of mega-caps. So it makes sense that growth-oriented funds – and especially those concentrated in companies with larger market caps – outperform the S&P 500 and the Nasdaq Composite.
However, the best use of a low-cost ETF is not to try to time the market based on what works in the short term, but rather to find a passive income vehicle that you like and feel comfortable with. comfortable holding during periods of volatility.
Growth stocks are generally more volatile than value and income stocks. Growth ETFs manage to diversify, but it’s worth understanding that they could also fall more than major benchmarks during a stock market correction or sell-off.
All three Vanguard ETFs discussed are good choices, but the Vanguard Russell 1000 Growth ETF might be the better choice if you want exposure to more companies and a little less focus on the biggest names.
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$5,000 in this Vanguard ETF costs just $4 in annual fees and it beat the S&P 500 and Nasdaq Composite in 2024 was originally published by The Motley Fool