The Case Against Vanguard’s Growth ETF
If you’re looking to capitalize on the artificial intelligence (AI) surge, investing in an ETF loaded with growth stocks might be a good move. One well-known fund that comes to mind is the Vanguard Russell 1000 Growth ETF. This fund includes a variety of AI stocks and boasts low expense ratios, around 0.06%. Sounds appealing, right?
But, here’s the rub. This ETF has its drawbacks, making it less than ideal for various investors. Over the last year, it’s actually lagged behind other tech stocks, particularly the Nasdaq-100, while keeping pace with the S&P 500.
In fact, there might be two other Vanguard ETFs that could serve you better than this one. Let’s dig into why the Vanguard Russell 1000 Growth ETF may not be the best choice, and what you could consider instead.
Lack of Diversity
Don’t let the “1000” in its name fool you. This ETF holds only 387 stocks, with a heavy concentration in tech. As of now, about 59% of its portfolio is in the technology sector. The top five holdings—names like Nvidia, Apple, Microsoft, Broadcom, and Amazon—make up nearly 43% of the fund.
This lack of diversification doesn’t fully inspire confidence. Over the past year, while it has slightly outperformed the S&P 500, it hasn’t kept up with the robust growth seen in the tech-heavy Nasdaq-100. If you’re specifically looking to invest in tech or want a broad mix that includes non-tech stocks, there are definitely better options out there.
Here are two affordable Vanguard ETFs that might make more sense for most investors.
What to Buy Instead: VGT
First up is the Vanguard Information Technology ETF. This fund holds 317 stocks, all within the tech sector. The breakdown shows significant investments in areas like semiconductors (around 34.2%) and software development (approximately 26.1%).
Notably, this ETF has an expense ratio of just 0.09%. Over the past decade, it has averaged an impressive 24% annual return, while the Vanguard Russell 1000 Growth ETF has come in at about 18% during the same period.
What to Buy Instead: VOO
If diversifying beyond tech is what you’re after, consider the Vanguard S&P 500 ETF. This fund tracks the top 500 public companies in the U.S. and features a remarkably low expense ratio of just 0.03%.
It currently includes 504 stocks. Yes, tech makes up 32.9% of this portfolio, but you get a solid variety across various sectors such as financials, consumer staples, and healthcare.
Over the last ten years, the Vanguard S&P 500 ETF has provided a 15% average annual return. While it may not match the performance of those tech-heavy funds, diversifying might be less risky and offer a buffer against volatility.
For me personally, owning 387 growth stocks in the Vanguard Russell 1000 Growth ETF feels a bit awkward. If you’re ready to go all-in on tech, you might prefer the VGT or a Nasdaq-100 ETF. If you’re leaning towards diversification, a straightforward S&P 500 index ETF like VOO makes a lot of sense.
