Election results spurred a rally in equity markets, with the major indexes closing last week at all-time highs. Two of Vanguard's best-known exchange-traded funds (ETFs), the Vanguard Growth ETF (VUG -1.43%) and the Vanguard Value ETF (VTV -0.59%), also hit all-time highs on Friday, Nov. 8. Those major milestones can seem strange, given that the two ETFs have completely different holdings.
Here's why mega-cap value and growth stocks are both doing well right now and whether either ETF is worth buying now.
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What to expect from two top Vanguard ETFs
The Vanguard Growth ETF and Vanguard Value ETF both feature 0.04% expense ratios -- which is just 40 cents in fees for every $1,000 invested. That's about as low-cost as you'll find in the ETF world.
Over the last five years, the Vanguard Growth ETF has closely mirrored the performance of the Nasdaq Composite, while the Vanguard Value ETF has followed the Dow Jones Industrial Average.
VUG total return level; data by YCharts.
The correlation makes sense, given that many of the top holdings in the Nasdaq Composite are also top holdings in the Vanguard Growth ETF, and six of the top 10 holdings in the Vanguard Value ETF are also Dow components.
The Vanguard Growth ETF targets companies with earnings growth potential, even if they are expensive and don't pay dividends. It has a price-to-earnings ratio (P/E) of a whopping 49.1 and a yield of just 0.5% compared to a P/E of just 20 for the Vanguard Value ETF and a yield of 2.3%. For context, the Vanguard S&P 500 ETF, which mirrors the performance of the S&P 500, has a P/E of 30 and a yield of 1.3%.
Diversification differences
One of the biggest differences between the two ETFs is their concentration in top holdings. As you can see in the following table, the Vanguard Growth ETF has over 59% of its allocation in just 10 holdings.
|
Holding |
Weight in the Vanguard Growth ETF |
Year-to-Date Return |
Percentage Off All-Time High |
|---|---|---|---|
|
Apple |
12.1% |
18% |
4% |
|
Microsoft |
11.4% |
12.5% |
9.6% |
|
Nvidia |
10% |
198% |
0.9% |
|
Amazon |
6% |
37.1% |
0.9% |
|
Alphabet |
6% |
27.8% |
6.7% |
|
Meta Platforms |
4.7% |
66.5% |
1.1% |
|
Eli Lilly |
2.9% |
42.7% |
13.3% |
|
Tesla |
2.7% |
29.2% |
21.7% |
|
Visa |
1.7% |
18.3% |
0% |
|
Mastercard |
1.6% |
23% |
0% |
Data sources: Vanguard, YCharts.
Strong performances by top holdings such as Nvidia, Amazon, Meta Platforms, and Eli Lilly have contributed to the fund's excellent return this year. But it's also worth noting that all the top holdings are doing well, and many are less than 10% off their all-time highs.
By comparison, the Vanguard Value ETF has just 21.3% of its allocation in the top 10 holdings.
|
Holding |
Weight in the Vanguard Value ETF |
Year-to-Date Return |
Percentage Off All-Time High |
|---|---|---|---|
|
Berkshire Hathaway |
3.2% |
29.9% |
3.2% |
|
JPMorgan Chase |
2.7% |
39.3% |
4.1% |
|
UnitedHealth Group |
2.5% |
17% |
0% |
|
ExxonMobil |
2.4% |
21.2% |
3.4% |
|
Procter & Gamble |
1.9% |
14.4% |
5.7% |
|
Home Depot |
1.8% |
17.2% |
3% |
|
Broadcom |
1.8% |
64.6% |
1.2% |
|
Johnson & Johnson |
1.8% |
(0.8%) |
16.4% |
|
Walmart |
1.6% |
61.5% |
0% |
|
AbbVie |
1.6% |
28.8% |
2.1% |
Data source: Vanguard, YCharts.
With the exception of Johnson & Johnson, all of the top 10 holdings are within less than 6% of their all-time highs. There have been some massive winners this year, such as Broadcom, Walmart, and JPMorgan Chase -- which showcase that the market rally is much broader than just mega-cap growth stocks.
Two worthwhile choices for patient investors
The Vanguard Growth ETF has 183 holdings, so it looks diversified at first glance. But as we saw in the fund's composition, it is boom or bust based on its biggest mega-cap growth names. By comparison, the Vanguard Value ETF has 336 holdings and less concentration in the top holdings, making it much more diversified.
The Growth ETF is top-heavy because of the sheer size of behemoths like Apple, Microsoft, and Nvidia, which have a combined market cap of over $10 trillion. There simply isn't any company that large in the world of value stocks. In fact, the only value stock close to a $1 trillion market capitalization is Berkshire Hathaway, which currently sits at $998 billion.
The Vanguard Growth ETF and Vanguard Value ETF are useful alternatives to an S&P 500 index fund for investors looking to concentrate more on their objectives, whether that's future growth and innovation or value and yield. Both funds are at all-time highs because multiple stock market sectors are doing well right now -- including tech, communications, consumer discretionary, financials, and industrials. Many top names from these sectors are also around all-time highs, driving the broader market's performance.
The Vanguard Value ETF remains a solid buy for investors interested in putting capital to work in the market but who want to avoid buying high-flying growth stocks.
The Vanguard Growth ETF could also be worth buying, but only for investors who like its top holdings and have a high risk tolerance. The higher that top growth stocks run, the more stretched their valuations will become, and the more pressure will be put on earnings to deliver. The Vanguard Growth ETF is up 91% in just two years, which is an incredible gain but leaves the fund vulnerable to a correction if some of the top holdings sell off.
