What’s crucial advantage of investing in an exchange-traded fund (ETF)? There are several possible answers. Arguably the right one is that ETFs provide a straightforward choice to buy multiple great stocks in a single fell swoop.
The Vanguard Mega Cap Growth Index Fund ETF (NYSEMKT: MGK) is a great example. Nearly 59% of this Vanguard ETF is invested throughout the so-called “Magnificent Seven” stocks.
Magnificent holdings
Anytime you see “index fund” in an ETF’s name, it’s a dead giveaway that the ETF attempts to trace the performance of an index. Throughout the case of the Vanguard Mega Cap Growth Index Fund ETF, the targeted index is the CRSP US Mega Cap Growth Index.
With a give attention to U.S. megacap stocks that offer strong growth prospects, it isn’t surprising that this Vanguard ETF is loaded up on Magnificent Seven stocks. Microsoft ranks as its largest holding, making up 14.6% of the ETF’s total portfolio. Apple isn’t far behind at 12.69%.
The Vanguard Mega Cap Growth Index Fund ETF has 7.63% of its portfolio Amazon, neck-and-neck with the 7.3% invested in Nvidia. Alphabet is accessible in next making up 6.97% of the ETF’s portfolio. The final word two members of the Magnificent Seven, Meta Platforms and Tesla, account for five.32% and a pair of.67% of the fund’s assets, respectively.
Where is the rest of the 41% of the Vanguard ETF’s portfolio invested? The fund owns 75 other stocks. Lots of them are megacap winners just like Eli Lilly and Visa. Nevertheless, not all of them meet the $200 billion market cap threshold to be categorized as megacap. For example, the ETF has relatively small stakes in Boeing and Lam Research, each of which have market caps of below $130 billion.
Much to like
There’s much for investors to like with reference to the Vanguard Mega Cap Growth Index Fund ETF. That may be very true throughout the last 12 months, with the ETF skyrocketing greater than 50%.
This sizzling performance is to be expected considering the ETF’s give attention to megacap growth stocks. Regardless of the whole lot, 4 of the Magnificent Seven stocks have vaulted over 50% higher in the middle of the last 12 months with Nvidia and Meta leading the pack.
We haven’t got to focus just on the fund’s recent performance, though. In the course of the last five years, the Vanguard Mega Cap Growth Index Fund ETF has delivered a median annualized return of 19.59%. Since its inception in December 2007, the ETF’s average annual return is 12.73%.
Vanguard is assumed for its low fees — and this megacap ETF doesn’t disappoint on that front. The Vanguard Mega Cap Growth Index Fund ETF has an annual expense ratio of only 0.07%. By comparison, the common expense ratio of comparable funds is 0.96%.
Is that this Vanguard ETF a no brainer buy?
The foremost knock against the Vanguard Mega Cap Growth Index Fund ETF is analogous as the primary drawback of the Magnificent Seven — valuation. The standard price-to-earnings ratio of the 82 stocks owned by the ETF is a sky-high 38.3x.
Granted, it’s a trailing 12-month multiple. This Vanguard ETF’s valuation would almost actually look somewhat more attractive using a forward earnings multiple. Nevertheless, the premium price means this ETF is not a no brainer buy.
Nevertheless, megacap growth stocks (including others outside of the Magnificent Seven) is likely to be big winners over the long term. For investors trying to find strong growth prospects who’re willing to tolerate potentially high volatility, I feel the Vanguard Mega Cap Growth Index Fund ETF is likely to be a great pick.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. Keith Speights has positions in Alphabet, Amazon, Apple, Meta Platforms, and Microsoft. The Motley Idiot has positions in and recommends Alphabet, Amazon, Apple, Lam Research, Meta Platforms, Microsoft, Nvidia, Tesla, and Visa. The Motley Idiot recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
59% of This Vanguard ETF Is Invested throughout the “Magnificent Seven” Stocks. Is It a No-Brainer Buy Right Now? was originally published by The Motley Idiot