Warren Buffett once said, "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes." Buying or selling a stock based on what it may do for your portfolio in the short term isn't a profitable way to invest over the long term.
The reward for holding U.S. stocks over Treasury bonds has not been this unattractive since 2004, possibly setting the stage for the sought-after 60/40 portfolio diversification to make a comeback after one of its worst years on record.
When people discuss Amazon's (NASDAQ: AMZN) growth opportunities, they often talk about its cloud-operation Amazon Web Services (AWS) or the North American e-commerce operation. Some even talk about the opportunity in advertising, but people rarely mention the international e-com
If you can consistently find competitively advantaged businesses that go on to capture large portions of fast-growing markets, you can earn a fortune in the stock market.
After growth stocks hit a wall in 2022, they’re back in vogue so far in 2023. For example, the Vanguard Growth ETF (
NYSEARCA:VUG
), one of the largest growth ETFs in the market with over $75 billion in assets under management (AUM), suffered a 33.1% decline last year, but it's up 8.7% year-to-date. While this is a nice gain so far, analysts believe that VUG still has plenty of upside ahead -- the
average VUG stock price target of $275.23 implies upside potential of 18.5% from current levels. Additionally, according to the views of 4K analysts, the Vanguard Growth ETF is a “Moderate Buy.”
TipRanks uses proprietary technology to compile analyst forecasts and price targets for ETFs based on a combination of the individual performances of the underlying assets. By using the Analyst Forecast tool, you will get an overview of the overall analyst rating, analyst price target, and upside or downside for an ETF, as well as the highest and lowest price targets.
TipRanks calculates a weighted average based on the combination of all the ETFs’ holdings. The average price forecast for an ETF is calculated by multiplying each individual holding’s price target by its weighting within the ETF.
For the Vanguard Growth ETF, 65.5% of the analysts in our data set rate this ETF a Buy, while 30.6% view it as a Hold. Just 3.8% call VUG a Sell.
Furthermore, VUG has an ETF Smart Score of 8, meaning that it is likely to outperform the market. Other indicators tracked by TipRanks, such as Crowd wisdom and blogger sentiment, are also positive.
VUG's Holdings
VUG's holdings include 254 stocks, and its top 10 holdings make up 46% of the fund. The fund tracks the CRSP US Large Cap Growth Index, which is comprised of large-cap U.S. growth stocks. Growth stocks are simply stocks that are expected to grow their revenue, profit, or cash flow at a faster rate than the broader market. Growth stocks are often companies with innovative new technologies or companies that are disrupting existing industries.
While growth stocks are more volatile than the broader market, picking the right growth stocks can lead to significant returns. This is where an ETF like VUG that offers broad diversification to a wide array of top U.S. growth stocks comes in handy -- investors get exposure to hundreds of blue-chip growth stocks without single-stock risk.
There is plenty of overlap between growth stocks and tech, so you’ll find a heavy weighting towards large-cap tech stocks like Apple (
NASDAQ:AAPL
), Microsoft (
NASDAQ:MSFT
), Amazon (
NASDAQ:AMZN
), Alphabet (
NASDAQ:GOOG
) (
NASDAQ:GOOGL
) and Tesla (
NASDAQ:TSLA
) within VUG's top 10 holdings.
But growth stocks aren't limited to the tech sector -- payment networks Mastercard (
NYSE:MA
) and Visa (
NYSE:V
) are also among the top holdings, as is home improvement giant Home Depot (
NYSE:HD
). Other notable holdings include names like ThermoFisher (
NYSE:TMO
), McDonald’s (
NYSE:MCD
), and Nike (
NYSE:NKE
), so this ETF invests across a wide swath of high-quality U.S. growth stocks. Below is a look at the fund’s top 10 holdings.
Seven out of the top 10 holdings have Strong Buy ratings from analysts, including all five of the top five holdings. Analysts are particularly bullish on holdings like Amazon and Alphabet, which they collectively see as having upside potential of 50% and 43%, respectively.
Long-Term Performance
The Vanguard Growth ETF has a stellar track record over the long term. VUG suffered a 33.1% decline in 2022 as growth stocks struggled due to rampant inflation and rising interest rates. However, zoom further out, and VUG's performance looks a lot more impressive. VUG has returned 56.8% over the past five years and just under 200% over a 10-year time frame, even after accounting for last year's sell-off. Since its inception in 2004, VUG has returned 357.8%.
Dividend and Expenses
While it isn't necessarily enough to put VUG on the radar of income investors, this ETF is a
dividend payer that currently yields about 0.64%. In addition to this dividend, its bullish outlook from analysts, and its comprehensive portfolio of blue-chip growth stocks, one thing that really makes the Vanguard Growth ETF stand out is its minuscule expense ratio.
VUG features an expense ratio of just 0.04%, meaning that an individual investing $10,000 in VUG would pay just a negligible $4 in management fees over the course of a year. This is significantly cheaper than the 0.95% that Vanguard says is the average expense ratio for similar funds. Over the course of years and even decades, this can make a huge difference for an investor’s portfolio.
Assuming no change to the fee and a 5% annualized return, after 10 years, an investor with $10,000 in VUG would pay just $51 in fees over the course of the decade. Compare this to an ETF with an expense ratio of 0.5%, for example, and an investor would pay $50 in fees in just the first year alone. Over time, this makes a meaningful difference, and low fees like this can help investors preserve money.
Looking Ahead
While VUG is off to a nice start to 2023, analysts see more upside ahead, as discussed above. VUG could have more reversion to the mean coming after underperforming the S&P 500 (
SPX
) last year, as investor enthusiasm for growth and technology seems to be returning to the market based on a number of factors.
Inflation cooling down and the Federal Reserve slowing the pace of interest rate hikes would both bode well for growth stocks. Also worth noting is the fact that valuations for many growth stocks came down after last year's sell-off, meaning that valuation is now more palatable in many cases. Lastly, excitement over new innovations like consumer-facing generative
Artificial Intelligence (AI) applications like
ChatGPT is reigniting investor enthusiasm for tech stocks.
The Vanguard Growth ETF is a great way for investors who are just starting out to quickly gain instant, diversified exposure to a large group of blue-chip U.S. growth stocks, as 7 of the top 10 stocks enjoy Strong Buy designations based on TipRank's data.
Furthermore, with its low fees and strong historical performance, VUG is a great ETF for investors of all levels who want to have low-cost, broad exposure to growth in their portfolios.
Disclosure
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