$1,000 in This Vanguard ETF Incurs a Mere $1 Annual Fee, and It Has Beaten the S&P 500

Exchange-traded funds (ETFs) are a simple and hands-off way to gain exposure to a variety of companies. Many low-cost Vanguard index funds mirror the performance of the major benchmarks like the S&P 500 and the Nasdaq Composite — achieving diversification and broad-based market exposure. However, some Vanguard funds charge low fees and have characteristics that give them an edge over alternatives.

The Vanguard S&P 500 Growth ETF (VOOG -0.14%) has crushed the performance of the S&P 500 and the Nasdaq Composite this year. And best of all, the fund charges a 0.10% expense ratio, meaning that $1,000 invested in the fund incurs just $1 in annual fees.

Here’s how the fund stacks up against other Vanguard ETFs and why it’s a good buy now.

A growth-fueled market

Even if you’ve been loosely following the broader market moves over the last couple of years, chances are you know that megacap growth companies like Nvidia and Meta Platforms have been leading the major indexes to new heights. On June 5, Nvidia overtook Apple as the second-most-valuable company in the world. Sectors or funds with exposure to these types of stocks have done quite well so far this year.

The Vanguard Growth ETF (VUG -0.10%) is one of Vanguard’s most popular funds, with $220 billion in net assets and a mere 0.04% expense ratio. The Vanguard Mega Cap Growth ETF (MGK 0.01%) isn’t as big, with just $18 billion in net assets and a 0.06% expense ratio. But it’s been crushing the benchmarks thanks to high exposure to megacap growth stocks.

With just $10 billion in net assets, the Vanguard S&P 500 Growth ETF is even smaller. But so far this year, it has beaten the Vanguard Growth ETF, Vanguard Mega Cap Growth ETF, S&P 500, and Nasdaq Composite.

VOOG data by YCharts

The top holdings across all three funds are the usual suspects of Microsoft, Apple, Nvidia, Amazon, Alphabet, Meta Platforms, etc. But what’s interesting is that the Vanguard S&P 500 Growth ETF includes some important names absent from the other two ETFs. Most notable is Broadcom, which is the eighth-largest holding in the Vanguard S&P 500 Growth ETF.

Oracle, UnitedHealth Group, and Procter & Gamble are also top 20 holdings that aren’t in the other two ETFs. You’ll also find industry-leading dividend stocks like Home Depot in the Vanguard S&P 500 Growth ETF and not the other two ETFs.

If you’re weighing the pros and cons of different Vanguard ETFs, it’s important to understand how Vanguard structures its portfolio of funds and how that strategy impacts holdings in other funds. For example, the Vanguard Value ETF (VTV -0.16%) is, in many ways, the counterpart to the Vanguard Growth ETF. Broadcom, UnitedHealth, Procter & Gamble, and Home Depot are all top 10 holdings in the fund. However, it excludes Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta Platforms, and Tesla.

Meanwhile, the Mega Cap Growth ETF is highly concentrated in top ideas. It only has 79 holdings compared to 229 for the Vanguard S&P 500 Growth ETF.

Betting big on a few sectors

You can think of the Vanguard S&P 500 Growth ETF as the Vanguard Growth ETF plus some key holdings from the Vanguard Value ETF. Here’s how it compares to the Vanguard S&P 500 ETF (VOO -0.13%)

Data source: Vanguard.

As you can see in the table, the Vanguard S&P 500 Growth ETF is heavily weighted in three sectors and has less exposure to consumer staples, energy, financials, healthcare, industrials, materials, real estate, and utilities than the S&P 500. But it isn’t outright ignoring stodgy, dividend-paying companies — as some of the more aggressive growth funds do.

As mentioned, the Vanguard S&P 500 Growth ETF holds Procter & Gamble, UnitedHealth, and Home Depot — which are components of the Dow Jones Industrial Average that reward shareholders with buybacks, dividend growth, and organic growth.

The largest oil and gas holding in the Vanguard S&P 500 Growth ETF isn’t an integrated major like ExxonMobil or Chevron, but exploration and production company ConocoPhillips — which focuses on the upstream side of the industry rather than refining, marketing, and the rest of the value chain. This is yet another example of how the Vanguard S&P 500 Growth ETF is more aggressive than a pure-play S&P 500 fund but is a more balanced choice than the Vanguard Growth ETF or the Vanguard Mega Cap Growth ETF.

A winning formula

If there’s one word that has defined stock market winners last year and this year, it’s quality. Investors have been paying up for companies with industry-leading positions, strong balance sheets, and clear paths toward sustained growth and passing on smaller companies with greater uncertainty, even if many of those smaller companies are dirt cheap.

Quality, no matter the sector, has led the Vanguard S&P 500 Growth ETF to outperform other top growth-orientated ETFs and the major indexes so far this year. The combination of being heavily weighted in top growth stocks and the fastest growing sectors of the market — while also including stodgier industry leaders in slower-growing sectors has been very effective so far this year.

All told, the ETF has the composition needed to beat the S&P 500 long-term without charging exorbitant fees. Investors looking for a basket of faster-growing, higher-quality S&P 500 names without sacrificing value could consider the Vanguard S&P 500 Growth ETF over other Vanguard funds.