Vanguard Growth ETF VUG provides a market-cap-weighted portfolio of the largest and highest-growth companies in the U.S. equity market. Concentration presents some risks, but its low turnover, tight tracking, and razor-thin expense ratio make this one of the best large-growth funds available. Its admiral, institutional, and exchange-traded fund share classes maintain their Morningstar Analyst Ratings of Gold, while the pricier investor shares retain a Silver rating. The fund tracks the CRSP U.S. Large Cap Growth Index, which captures the faster growing side of the large-cap market. The index selects its constituents from a pool of stocks representing the top 85% of U.S. market capitalization, and it holds the growth-oriented stocks of this pool. Generous buffers around their market capitalization and growth bounds contribute to a stable portfolio, while investor-friendly trading practices mitigate market impact costs. Pronounced sector biases and heightened firm-specific risks warrant consideration. As of June 2022, the fund's top 10 holdings made up nearly half of its allocation, with Apple AAPL (13%) and Microsoft MSFT (11%) accounting for 24% by themselves. The technology sector is moderately overweight compared with the category average, while energy, financial services, and healthcare are notably underweight. While this strategy is certainly top-heavy, its overall diversification is aided slightly by the inclusion of mid-cap stocks and a few names trading at relatively lower valuations. The fund shares 9% of its holdings with this strategy's value-oriented twin, Vanguard Value Index VIVAX. Weaving these names into the mix may help this strategy endure periods when large growth is out of favor. Sector biases have been a buoy to performance since the inception of this fund in 2004, but they have dragged on performance lately as its tech-heavily allocation has been out of favor through the first six months of 2022. However, its razor-thin fee and low cash drag should provide a long-term edge while keeping tracking error in check.
Key Proprietary Morningstar Metrics for Vanguard Growth ETF
Morningstar Analyst Rating: Gold Process Pillar: Above Average People Pillar: Above Average Parent Pillar: High
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