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Should Vanguard Growth ETF (VUG) Be on Your Investing Radar?

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Designed to provide broad exposure to the Large Cap Growth segment of the US equity market, the Vanguard Growth ETF (VUG - Free Report) is a passively managed exchange traded fund launched on 01/26/2004.

The fund is sponsored by Vanguard. It has amassed assets over $70.19 billion, making it one of the largest ETFs attempting to match the Large Cap Growth segment of the US equity market.

Why Large Cap Growth

Companies that find themselves in the large cap category typically have a market capitalization above $10 billion. Considered a more stable option, large cap companies boast more predictable cash flows and are less volatile than their mid and small cap counterparts.

Qualities of growth stocks include faster growth rates compared to the broader market, as well as higher valuations and higher than average sales and earnings growth rates. Additionally, growth stocks have a greater level of risk associated with them. They are likely to outperform value stocks in strong bull markets but over the longer-term, value stocks have delivered better returns than growth stocks in almost all markets.

Costs

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.04%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 0.68%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Information Technology sector--about 45.90% of the portfolio. Consumer Discretionary and Telecom round out the top three.

Looking at individual holdings, Apple Inc. (AAPL - Free Report) accounts for about 13.17% of total assets, followed by Microsoft Corp. (MSFT - Free Report) and Amazon.com Inc. (AMZN - Free Report) .

The top 10 holdings account for about 43.12% of total assets under management.

Performance and Risk

VUG seeks to match the performance of the CRSP U.S. Large Cap Growth Index before fees and expenses. The CRSP US Large Cap Growth Index represents the growth companies of the CRSP US Large Cap Index.

The ETF has added roughly 3.73% so far this year and is down about -23.57% in the last one year (as of 01/20/2023). In the past 52-week period, it has traded between $208.44 and $295.89.

The ETF has a beta of 1.09 and standard deviation of 29.40% for the trailing three-year period, making it a medium risk choice in the space. With about 247 holdings, it effectively diversifies company-specific risk.

Alternatives

Vanguard Growth ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, VUG is a sufficient option for those seeking exposure to the Style Box - Large Cap Growth area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 1000 Growth ETF (IWF - Free Report) and the Invesco QQQ (QQQ - Free Report) track a similar index. While iShares Russell 1000 Growth ETF has $59.34 billion in assets, Invesco QQQ has $147.25 billion. IWF has an expense ratio of 0.18% and QQQ charges 0.20%.

Bottom-Line

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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