Go Big or Go Bigger: Is the Vanguard Mega Cap Growth ETF or S&P 500 Growth ETF the Better Buy?

Choosing between Vanguard S&P 500 Growth ETF (NYSEMKT:VOOG) and Vanguard Mega Cap Growth ETF (NYSEMKT:MGK) involves weighing a slightly lower cost against a broader portfolio of S&P 500 growth stocks.

Both Vanguard funds provide low-cost exposure to the U.S. growth market but differ in their underlying index methodology. While MGK targets only the largest market-capitalization names, VOOG casts a wider net across the entire S&P 500, offering a different balance of concentration and diversity.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). 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 16.

MGK is slightly more affordable with a 0.05% expense ratio, while VOOG charges 0.07%. Investors seeking higher income could find more value in the Vanguard S&P 500 Growth ETF, which provides a higher trailing-12-month payout.

Performance & risk comparison

What's inside

The Vanguard S&P 500 Growth ETF (VOOG) portfolio contains 148 holdings, primarily in Technology 52%, Communication Services 16%, and Consumer Cyclical 9%. Its largest positions include Nvidia Corp (NASDAQ:NVDA) at 13.6%, Microsoft Corp (NASDAQ:MSFT) at 7.8%, and Apple Inc (NASDAQ:AAPL) at 6%. It launched in 2010. Vanguard S&P 500 Growth ETF has paid $0.37 per share over the trailing 12 months, which on its recent ~$81.91 share price works out to a 0.50% yield.

The Vanguard Mega Cap Growth ETF (MGK) portfolio is more concentrated with 56 holdings, led by Technology 59%, Communication Services 17%, and Consumer Cyclical 11%. Its largest positions include Nvidia at 13.24%, Apple at 12%, and Microsoft Corp at 8%. It launched in 2007. Vanguard Mega Cap Growth ETF has paid $0.29 per share over the trailing 12 months, which, on its recent ~$88.18 share price, works out to a 0.30% yield.

Which fund is the better buy?

These two Vanguard funds are a choice between going big or going bigger.

Both have rock-bottom expenses, both are more than 90% invested in large-cap stocks, and both are around 40% focused on large-cap growth stocks.

The mega cap ETF, MGK, is a bet that the top tier of names in the stock market will continue to be leaders. Because it is so concentrated, two-thirds of its assets are focused on its top 10 holdings. Nine of those are tech holdings, the other, Eli Lilly & Co. (NYSE:LLY), which is number ten at 3.4% of the portfolio.

While more diversified, VOOG is still fairly concentrated with fewer than 200 stocks. It’s still pretty focused on its top 10, where 56% of assets are allocated. Nine of its 10 top holdings are also tech (Lilly is the other here too), and just one stock in the top 10 mix differs for VOOG, Micron Technologies (NASDAQ:MU), at 3.7% of the portfolio.

The main difference, then, is performance. Here, a little more diversity pays dividends, with VOOG outperforming MGK in every time frame, but the 10-year period, where MGK posts annualized gains of 19%, versus 18% for VOOG.

In the 3-year and 5-year periods, VOOG returns 25.8% and 14.%, respectively, compared to 23.7% and 14.3% in MGK’s 3- and 5-year look-backs.

Diversification is a good rule of thumb in investing, and here between these concentrated ETFs that holds true. The choice is VOOG for long-term investors.

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, Eli Lilly, Micron Technology, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.