10 Stocks Make Up 60% of This $220 Billion Vanguard ETF. Here's What That Means If the AI Trade Cracks.

The Vanguard Growth ETF (NYSEMKT: VUG) holds 147 stocks. That sounds like diversification, and it's part of why investors have parked more than $220 billion in the fund. But look at where the money actually sits. As of June 30, the fund's 10 largest holdings accounted for about 60% of its assets.

Strictly speaking, those 10 stocks represent nine companies, since Alphabet appears twice through its two share classes. Either way, the arithmetic is the same: For every dollar invested in this fund, about 60 cents ride on fewer than a dozen names, most of them tied to the AI (artificial intelligence) trade.

That's not a criticism of the fund. It's simply what the fund has become. And with AI stocks wobbling hard this month, I think it's worth spelling out exactly what investors in this popular growth fund actually own.

Image source: Getty Images.

Where the 60% sits

Nvidia is the largest holding at 12.6% of assets, followed by Apple at 11.7%. Together, the fund's top two positions are about 24% of the portfolio -- nearly a quarter of a 147-stock fund in two names.

Microsoft comes next at 7.6%, then Alphabet's two share classes at a combined 10.3%, Amazon at 4.5%, Broadcom at 4.3%, Meta Platforms at 3.4%, Tesla at 3.3%, and Eli Lilly at 2.8%.

That didn't happen because someone at Vanguard picked favorites. The fund tracks the CRSP US Large Cap Growth Index, which weights companies by free-float-adjusted market value. When a handful of stocks lead the market higher for years, an index like this concentrates automatically. The winners simply grow into ever-larger weights.

Concentration isn't a flaw in the fund's design, in other words. It's the design working as intended, applied to a market that has crowned an unusually small set of winners.

What a crack in the AI trade would do to the fund

The trouble with concentration is that it works in both directions, and the math on the way down is simple. Nvidia alone, at 12.6% of assets, can move the whole fund by more than a percentage point in a single bad session. The fund's five biggest stock positions -- Nvidia, Apple, Microsoft, and Alphabet's two share classes -- are about 42% of assets, so if those five fell 20% while every other position stood still, the fund would drop about 8%. If the whole top 10 fell 30%, the fund would lose about 18%, before counting the smaller AI-adjacent names further down the list that could fall alongside them.

And there's a recent precedent. In 2022, the last calendar year in which richly valued growth stocks fell, the fund lost 33.1%, according to Vanguard. Investors who buy today should be prepared for drawdowns of that scale if the market turns sharply against large-cap growth, because the fund is built to hold whatever the market has been rewarding most.

With that said, the same design explains the fund's appeal. Concentration in the winners is why the fund returned 46.8% in 2023, 32.7% in 2024, and 19.4% in 2025. It's also why the fund has compounded at about 12% annually since its 2004 inception. Add an expense ratio of just 0.03%, and it's easy to see why so much money has shown up. After all, owning the market's biggest winners at almost no cost has been a wonderful strategy for a long time.

So how should investors handle a fund shaped like this? Mostly, by seeing it clearly. This is not a broadly diversified stock fund that happens to lean toward growth. At today's weights, it functions as a concentrated bet on America's technology giants, with a long tail of smaller positions along for the ride. There's nothing wrong with making that bet -- I'd just want to make it on purpose.

In addition, investors who already have heavy exposure to these same names (through an S&P 500 fund, or through owning the stocks directly) should also know that adding this fund doubles down on positions they already hold. And for anyone using it as a core holding, it arguably makes sense to pair it with funds built on what this one doesn't own, such as value stocks, dividend payers, or international names.

If the AI trade keeps working, the fund's top-heavy design will keep flattering returns. If it cracks, most of the fund cracks with it. Investors should size their position so they can live with both outcomes.

Daniel Sparks and his clients have positions in Apple. Daniel Sparks has clients with positions in Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Eli Lilly, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard Growth ETF. The Motley Fool has a disclosure policy.