The Vanguard Growth ETF tracks the stock performance of hundreds of high-growth companies based in the United States. The ETF was created in 2004 and is managed by Vanguard, the well-established provider of low-cost index funds. The fund provides a convenient way to track a wide swath of the US stock market.*
What is the Vanguard Growth ETF?
The Vanguard Growth ETF (VUG) operates a lot like an index fund in that it is tracking the performance of 301 US-based companies with large market capitalizations. An ETF is different from an index, however, because it can trade like a stock, while an index is traded based on net asset value (NAV) at the end of a trading day. In other words, an ETF can be traded anytime during market hours, which means investors can take advantage of market movements during the day.
Both ETFs and index funds fall into the category of passive investing, which is opposed to active investing. Deploying an active investing strategy means that fund managers are trying to make decisions to outperform the overall gains of the market. A passive strategy, such as an ETF, merely tries to track market performance. Decades of research show that on average, passively managed funds perform better over time than actively managed funds, which is the inspiration for why index funds and ETFs were created in the first place.
One big advantage of passive investing such as indexes and ETFs is that they have lower associated management costs when compared to actively traded funds.
Vanguard Growth ETF fundamentals
Fund symbol: VUG
Fund managers: The Vanguard Group, Inc. (Vanguard)
Fund management strategy: The Vanguard Growth ETF tracks the performance US growth companies that have high market capitalizations. The fund is managed and rebalanced to maintain the growth objective over time. Companies are added and subtracted from the fund based on their performance and growth profile.
The Vanguard Growth ETF is invested and diversified across a number of sectors that make up the backbone of the US economy. The technology sector represents approximately 30 percent of the fund (as of the mid-2019 reporting). Consumer services (20 percent), industrials (14 percent), and financials (13 percent), round out the fund’s top sectors.
The fund has a total net asset value (NAV) of $84.4 billion. The top ten assets by investment makeup nearly 38 percent of the fund and include: Microsoft, Apple, Amazon, Alphabet, Facebook, Visa, Mastercard, Home Depot, Comcast, and Boeing (as of mid-2019, this is subject to change based on rebalancing).
Performance: The fund has grown continually since inception in 2004.
The chart to the left shows the growth of a $10,000 investment in the Vanguard Growth ETF if made in 2009.
The fund has a one-year average return rate of 10.47 percent, a three-year return rate of 16.57 percent, a five-year return rate of 11.99 percent, a 10-year return rate of 15.68, and has returned 9.22 since inception on January 26, 2004.
Risks: This fund has wide exposure to the US stock market. It is made up entirely of large-cap growth stocks and so an investor assumes the risks inherent in the stock market and to large US corporations. Since the ETF is not diversified beyond one kind of holding (it is diversified across the market) then a downturn to the US economy would impact this ETF.
Since this ETF is not well diversified it is prioritizing growth over hedging risk. From the perspective of exposure it is riskier than other kinds of investments that spread risk across markets or asset classes.
The tradeoff for the risk is that this ETF has enjoyed steady growth since its inception.
Why Vanguard Growth ETF
This ETF can serve a number of purposes in a portfolio. Since it is managed for growth and rebalanced regularly, it has recorded steady performance in the past 15 years (although past performance can never be relied on when forecasting the future growth trajectory).
This ETF could be a good fit for an entry-level investor, especially if uncertain about what kinds of equities to select, or what sector of the US economy to begin investing.
Also, as mentioned above, this ETF would be a good portfolio companion to lower risk investments and ETFs. Normally when investing high growth is associated with more risk, and a way to hedge that risk is to take a position in assets with less exposure to market volatility. Frequently, lower-risk asset classes, such as fixed income (bond markets) also lower yields.
There are a number of resources available to help research the Vanguard Growth ETF. Vanguards own investing literature is a good place to start, including the fund’s prospectus and recent annual reports.
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