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Led by a resurgent tech sector, growth stocks are back in a big way in 2023, and the popular
Vanguard Growth ETF (
NYSEARCA:VUG)
is up 31.7% year-to-date. So, what is VUG, and could it be a fit for your portfolio?
What Does the VUG ETF Do?
VUG is the growth ETF from the fund and ETF giant Vanguard, and it's a popular one, growing to almost $90 billion in assets under management (AUM) since its inception in 2004. In fact, VUG is the
11th-largest ETF in the world by AUM, and if you remove two bond funds from the equation, it comes in at number nine. The ETF seeks to track the results of the CRSP US Large Cap Growth Index.
VUG's Portfolio
VUG is fairly diversified, with 241 holdings, although note that its top 10 holdings account for over 50% of assets. In fact, the top two holdings, Apple (
NASDAQ:AAPL
) and Microsoft (
NASDAQ:MSFT
), combine to account for over 25% of the fund. Below, you can get an overview of
VUG’s top holdings using TipRanks’ holdings tool.
As a growth ETF, VUG’s top holdings are dominated by the large-cap tech stocks that have propelled the market higher this year, including the aforementioned Apple and Microsoft, plus Amazon (
NASDAQ:AMZN
), Nvidia (
NASDAQ:NVDA
), Alphabet (
NASDAQ:GOOGL
) (
NASDAQ:GOOG
) and Tesla (
NASDAQ:TSLA
).
However, VUG isn’t limited to mega-cap tech. Beyond these names, healthcare giant Eli Lilly (
NYSE:LLY
) and payment networks Visa (
NYSE:V
) and Mastercard (
NASDAQ:MA
) also occupy spots within the top 10. Other notable holdings include more blue chip, large-cap growth stocks like Meta Platforms (
NASDAQ:META
), Thermo Fisher Scientific (
NYSE:TMO
), Home Depot (
NYSE:HD
), Costco (
NASDAQ:COST
), and McDonald's (
NYSE:MCD
).
VUG’s top 10 holdings feature a solid collection of Smart Scores. The
Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A Smart Score of 8 or higher is equivalent to an Outperform rating. As you can see in the table above, six out of VUG’s top 10 holdings feature Smart Scores of 8 or better.
VUG itself features an impressive ETF Smart Score of 8.
Is VUG Stock a Buy, According to Analysts?
Turning to Wall Street, VUG has a Moderate Buy consensus rating, as 66.9% of analyst ratings are Buys, 29.7% are Holds, and 3.4% are Sells. At $298.07, the
average VUG stock price target implies 6.9% upside potential.
A Star Performer
VUG is up 31.7% year-to-date, as mentioned earlier, and 24% over the past year, but it has been providing strong returns for its investors for a lot longer than that. Over the past three years, VUG has returned 11.8% on an annualized basis. Over the past five years, VUG has provided even better total returns of 13.2% on an annualized basis.
Zooming all the way out to 10 years, VUG has returned a stellar 13.9% on an annualized basis. Going all the way back to its inception in 2004, VUG’s total annualized return is impressively still in the double digits at 10.2%. Double-digit annualized returns over a long-term time horizon like this are a great way to build long-term wealth.
Furthermore, VUG is one of the rare ETFs that can say it has "beaten the market" over an extended time frame. Let’s use its Vanguard counterpart, the
Vanguard S&P 500 ETF (
NYSEARCA:VOO)
, as a stand-in for the broader market and the S&P 500 specifically.
Over a three-year time horizon, VOO’s annualized total return of 12.8% beats VUG’s 11.8%. However, when the time frame is extended to five years, VUG has the edge with a 13.2% return to VOO’s 11% return. Going out 10 years, VUG’s 13.9% annualized return also beats VOO’s 11.9% return.
Below, you can
check out a comparison of VUG and VOO created using TipRanks' ETF Comparison Tool, which allows investors to compare up to 20 ETFs at a time across a variety of customizable factors.
VOO’s long-term double-digit annualized returns are stellar, so this sets a high bar for beating the market, but VUG is an ETF that can make this claim.
Minimal Fees
Despite this excellent long-term track record, VUG isn’t charging investors an arm and a leg for this performance. The ETF’s expense ratio of just 0.04% is very investor-friendly. This means that an investor putting $10,000 into VUG would pay just a negligible $4 in fees in year one of investing in the fund. After three years, this same investor would pay just $10 in fees, and after 10 years, their total in fees paid would be just $39.
You can essentially gain exposure to hundreds of the market's top growth stocks for 10 years for less than the price of a dinner for two at most restaurants nowadays, which is a good deal in my book. Minimal fees like this can help investors to preserve the principal of their investment portfolios and make a big difference over the long term, as high fees can really add up over time.
Investor Takeaway
Note that VUG is also a dividend payer. While its current
dividend yield of just 0.6% isn't much to write home about in and of itself, it all adds up to help add to total returns over time. Furthermore, VUG has a proud history as a dividend payer, having made dividend payments to its holders for 18 years in a row going back to its inception in 2004.
With a very attractive expense ratio, a strong portfolio, and an excellent long-term track record, VUG is the type of ETF that investors can feel confident about making a cornerstone of their portfolios for the long term. Since VUG is up considerably this year, it's likely that there will be pullbacks at some point. Still, this ETF has proven itself as a long-term winner, so investors can consider utilizing these pullbacks to dollar-cost average into a position over time to lower their cost basis.
Disclosure
The Nasdaq managed a small gain on Wednesday with support
from megacap stocks while the S&P 500 and the Dow closed lower
after U.S. Federal Reserve Chair Jerome Powell signaled more
rate hikes and said he did not see inflation falling to the
central bank's target rate "this year or next year."
The S&P 500 and Dow closed lower on Wednesday on the prospect of further interest rate hikes after U.S. Federal Reserve Chair Jerome Powell said he did not see inflation falling to the central bank's target rate "this year or next year."
The S&P 500 and Dow were in the red on Wednesday on the prospect of further interest rate hikes after the Federal Reserve's chair Jerome Powell said that he did not see inflation falling to the central bank's target rate any time soon.
Many experienced investors know that it’s hard to beat the market over time. When they say this, they mean that it’s difficult to pick stocks and ETFs that can sustainably outperform broader market indices like the S&P 500 (
SPX
) on a long-term basis.
This is with good reason -- the S&P 500 sets a high bar with an annualized total return of just over 10% going all the way back to 1957 when it took on its current incarnation with 500 components.
Let’s take a look at one popular ETF, the
Schwab U.S. Large-Cap Growth ETF (
NYSEARCA:SCHG)
, and see if it’s worthy of a spot in investors' portfolios by being one of the rare ETFs that beats the odds and can help investors outperform the market over time.
What Does SCHG ETF Do?
SCHG is a growth-oriented ETF from Charles Schwab (
NYSE:SCHW
) that has about $18.7 billion in assets under management. According to Schwab, the ETF seeks to replicate the performance of “the total return of the Dow Jones U.S. Large-Cap Growth Total Stock Market Index” before fees and expenses.
Blue-Chip Holdings
Because it invests in an index composed of large-cap U.S. growth stocks, most investors will likely be familiar with SCHG’s top holdings, which skew largely towards the mega-cap growth stocks that lead today’s stock market. Below, you’ll find a list of
SCHG’s top 10 holdings using TipRanks’ holdings tool.
Apple (
NASDAQ:AAPL
) is SCHG's largest holding with a 14.1% weighting, followed closely by Microsoft (
NASDAQ:MSFT
), which has a 12.6% weighting. Amazon (
NASDAQ:AMZN
), Nvidia (
NASDAQ:NVDA
), and Alphabet (
NASDAQ:GOOGL
) round out the top five. However, it’s not all tech stocks, as UnitedHealth Group (
NYSE:UNH
) and Visa (
NYSE:V
) take the final two spots in SCHG's top 10.
SCHG is diversified in that it owns many stocks, with 243 total holdings. However, its top 10 holdings account for 55.5% of the fund, making the ETF a bit top-heavy, especially when considering that Microsoft and Apple combine to account for over a quarter of SCHG’s total assets.
This is a strong group of holdings, as five of the 10 feature Smart Scores of 8 out of 10 or better. The
Smart Score is TipRanks’ proprietary quantitative stock scoring system. It gives stocks a score from 1 to 10 based on eight market key factors. The score is data-driven and does not involve any human intervention. A Smart Score of 8 or above is equivalent to an Outperform rating. SCHG itself has an outperform-equivalent ETF Smart Score of 8.
Is SCHG Stock a Buy, According to Analysts?
Turning to Wall Street, SCHG has a Moderate Buy consensus rating, as 68.04% of analyst ratings are Buys, 28.42% are Holds, and 3.54% are Sells. At $78.98, the
average SCHG stock price target implies 7.4% upside potential.
Impressive Track Record
Ultimately, you want to evaluate how any investment has performed over the long term, and SCHG does not disappoint in this regard. As of the end of May, the growth-oriented ETF posted a scorching three-year annualized total return of 18.5%.
Zooming out to a five-year time frame, SCHG cooled down a bit from that red-hot rate but still posted an impressive five-year annualized return of 13.5%. Going out even further, over the past 10 years, SCHG upped this return to 14.4% on an annualized basis. Going all the way back to its inception in 2009, SCHG has returned 14.2% on an annualized basis.
As you can see, SCHG has posted double-digit returns on an annualized basis for more than 10 years, making this ETF a long-term winner. It’s hard to find fault with these types of results, and these are the types of long-term returns that can help investors to grow their portfolios significantly over time.
These total returns also mean that SCHG is a rare ETF that can say it beats the broader market over time. As of the end of May, the
Vanguard S&P 500 ETF (
NYSEARCA:VOO)
, a good proxy for the S&P 500, had annualized total returns of 12.8%, 11%, and 11.9% on a three-, five- and 10-year basis, respectively, meaning that SCHG beat the S&P 500 over all three time frames.
Alternatively, because it features large-cap growth and tech stocks so heavily, it is also worth comparing SCHG to a Nasdaq ETF like the
Invesco QQQ Trust (
NASDAQ:QQQ)
, which invests in the Nasdaq 100 Index (
NDX
).
SCHG handily beat QQQ over the three year timespan, with the aforementioned 18.5% annualized return versus QQQ’s 15%. However, going out to five years, QQQ’s 16.2% return beats SCHG’s 13.5%. Going all the way out to 10 years, QQQ also outperformed SCHG with an 18% return to SCHG’s 14.4%.
As you can see, SCHG has been better than QQQ in recent years, but QQQ has the edge when expanding the time frame out to five and 10 years. However, at the end of the day, these both look like great ETFs.
Below, you can take a look at
a comparison of SCHG, VOO, and QQQ using TipRanks’ ETF Comparison Tool, which lets investors compare up to 20 ETFs at a time across a wide variety of criteria.
Hard to Beat These Fees
In addition to proving its mettle as a strong performer over time, SCHG is also attractive because of its low fees. With an expense ratio of just 0.04%, an investor putting $10,000 into SCHG would pay just $4 in fees in year one -- less than a cup of coffee at many places nowadays.
Assuming SCHG gains 5% a year going forward and the current fees stay the same, an SCHG investor would pay just $51 in fees over the course of the decade, making this a cost-effective ETF that helps investors to preserve and grow the principal of their investment over time.
For the sake of comparison, QQQ's 0.2% expense ratio is actually a very reasonable one, but using the same parameters, after 10 years, an investor would pay $255 in fees, or about five times as much as they would pay with SCHG.
Investor Takeaway
It's hard to beat the S&P 500 over the long term, so when you find an ETF that does, you want to pay attention. With a long history of beating the broader market, high-quality blue-chip holdings, and investor-friendly fees, SCHG looks like a solid building block for investors to make a core piece of their long-term portfolios.
Disclosure
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