The Vanguard Mega Cap Growth ETF has shown a remarkable annual return of 18.8% over the past decade.
It tracks the CRSP US Total Market Index, which includes all 3,498 companies listed on U.S. stock exchanges. Interestingly, the top 65 companies make up about 70% of the total value, illustrating a significant concentration of wealth in the corporate landscape. The CRSP US Mega Cap Growth Index focuses solely on these leading companies, consistently generating high returns, particularly due to its strong ties to sectors like artificial intelligence (AI).
Notably, its biggest holdings include: Nvidia, Apple, Microsoft, and Alphabet. Together, their total market value reaches an impressive $14.9 trillion.
The Vanguard Mega Cap Growth ETF (MGK +0.59%) is an ETF that mirrors the performance of the CRSP US Mega Cap Growth Index, holding the same stocks and maintaining similar proportions. Adding this ETF to a diversified investment portfolio could really enhance returns for investors.
America’s top growth stocks in one ETF
AI is a groundbreaking technology that can help businesses boost productivity and explore new revenue opportunities. Companies like Nvidia, Apple, Microsoft, and Alphabet are pouring billions into developing the necessary infrastructure—from hardware to software—to propel this industry forward.
- Nvidia’s data center GPUs are considered the benchmark for AI development. Each announcement of a new GPU architecture by Nvidia paves the way for developers to create even more advanced AI models.
- Apple’s newest iPhone, iPad, and Mac devices now feature custom-designed chips intended for their Apple Intelligence suite of AI applications. With over 2.5 billion active devices, Apple is on track to become one of the largest distributors of AI to consumers.
- Microsoft has rolled out an AI assistant named Copilot, integrated into its key software offerings like Windows, Bing, and Microsoft 365 (Word, Excel, Outlook). Additionally, its Azure platform is a leading choice for developers wanting data center capacity to build their AI applications.
- Alphabet has revamped Google Search with new AI functionalities that are boosting its revenue growth. Google Cloud also stands out as a top provider of data center resources for AI developers, experiencing rapid growth.
At the end of January, these four stocks held a combined weight of 45.3% in the Vanguard Mega Cap Growth ETF, significantly impacting its overall performance.
|
Stock |
Vanguard ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
13.51% |
|
2. Apple |
11.71% |
|
3. Alphabet |
10.48% |
|
4. Microsoft |
9.60% |
Since the AI boom took off in early 2023, the S&P 500 has surged by 78%, while Nvidia’s stock has skyrocketed by an astonishing 1,150%. Except for Microsoft, these stocks have all notably outpaced the S&P 500 over recent years. (I’m hoping for a faster recovery from Microsoft, though).
Other significant AI stocks included in this Vanguard ETF are: Meta Platforms, Amazon, Tesla, Broadcom, and Palantir Technologies.
Enhancing your diversified portfolio with Vanguard ETFs
Since its inception in 2007, the Vanguard Mega Cap Growth ETF has achieved an average annual return of 13.6%, with a faster annual return of 18.8% over the last decade, driven by the growing adoption of technologies like enterprise software, cloud computing, and AI. However, putting all your funds into this ETF might not be the best move. A concentrated portfolio could lead to increased volatility, especially if emerging sectors like AI continue to grow rapidly.
Instead, this ETF could be an excellent addition to a diversified portfolio that hasn’t already invested heavily in technology or AI sectors.
For example, if an investor had $10,000 in the Vanguard Total World Stock ETF over the last decade, that would now be worth approximately $33,349. But if they had split that investment—$5,000 in the Vanguard Total World Stock ETF and $5,000 in the Vanguard Mega Cap Growth ETF—they would see their total value rise to about $44,672.
This approach allows investors to benefit from the continuing growth of companies like Nvidia, Apple, Microsoft, and Alphabet while still mitigating risk through sufficient diversification.
