Vanguard Growth ETF vs Small-Cap Growth: Is a Large Cap or Small Cap ETF the Better Choice?

If you’re looking for growth stock ETFs, you have a lot of choices. Investors choosing between Vanguard Growth ETF (NYSEMKT:VUG) and Vanguard Small-Cap Growth ETF (NYSEMKT:VBK) must weigh the massive scale of large-cap tech leaders against the smaller, more diversified growth potential of VBK.

Both funds target growth-oriented U.S. equities but operate at opposite ends of the market-cap spectrum. While VUG focuses on dominant giants, VBK tracks smaller companies that may offer more room for expansion, providing different risk and return profiles within a growth-focused portfolio.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield as of the close of July 1.

VUG is the more affordable option, with a 0.03% expense ratio compared to VBK’s 0.05%. Both funds offer a 0.40% yield, reflecting their common focus on reinvesting earnings for growth rather than distributing income.

Performance & risk comparison

What's inside

The Vanguard Growth ETF targets large-cap U.S. equities with strong growth potential. It holds 154 stocks and tilts heavily toward technology at 55.9%, communication services at 16.4%, and consumer cyclicals at 11.8%. Its largest positions include Nvidia Corp (NASDAQ:NVDA) at 13.10%, Apple Inc (NASDAQ:AAPL) at 12.3%, and Microsoft Corp (NASDAQ:MSFT) at 9%. It was launched in 2004. Vanguard Growth ETF has paid $0.34 per share over the trailing 12 months, which on its recent $86.17 share price works out to a 0.40% yield.

The Vanguard Small-Cap Growth ETF tracks the CRSP U.S. Small Cap Growth Index, focusing on companies with smaller market capitalizations. It holds 550 stocks, diversifying across technology at 28.5%, industrials at 24.8%, and healthcare at 14.9%. Top holdings include Astera Labs Inc (NASDAQ:ALAB) at 1.38%, Ciena Corp (NYSE:CIEN) at 1.14%, and Rocket Lab Corp (NASDAQ:RKLB) at 1.13%. It was launched in 2004. Vanguard Small-Cap Growth ETF has paid $1.53 per share over the trailing 12 months, which, on its recent $362.32 share price, works out to a 0.40% yield.

Which fund is the better buy?

Both of these Vanguard funds offer a diverse portfolio of growth stocks centered almost entirely on the U.S. (about 99% of the holdings in both VUG and VBK are U.S.-listed). Both the expenses and dividend yields are similar as well.

The major differences are in style. VUG is 90% large-cap stocks, mostly a blend of growth and value, with the balance in midcaps. VBK is 56% in small caps, 43% in midcaps, and 1% in large caps. The majority of the portfolio, 58%, is in value stocks, compared to 59% in VUG, which blends value and growth.

If market cap and the style of holdings aren’t differentiators, then performance makes the difference.

Given that small-cap stocks are having their best start to a year since 1991, it’s no surprise that VGK has outperformed VUG year-to-date (21.4% to 6.4%) and the past year (32.7% to 18.1%).

But over the longer term, VUG and its reliance on large-cap stocks, usually preferred by investors, show results. VUG returned 22.9%, 13.2%, and 18% over the 3-year, 5-year, and 10-year time frames. By comparison, the small-cap ETF returned 17.5%, 5.4%, and 12.2% over the 3-, 5-, and 10-year look-backs.

Past results can’t predict the future, of course, but the longer-term outperformance by the Vanguard Growth ETF makes VUG the better buy.

For more guidance on ETF investing, check out the full guide at this link.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Ciena, Microsoft, Nvidia, Rocket Lab, Vanguard Growth ETF, and Vanguard Index Funds - Vanguard Small-Cap Growth ETF. The Motley Fool recommends Astera Labs. The Motley Fool has a disclosure policy.