The Vanguard S&P 500 ETF Offers Broader Diversification Than The Vanguard Mega Cap Growth ETF

The Vanguard Mega Cap Growth ETF (NYSEMKT:MGK) delivers stronger recent growth but higher risk and a steeper price, while the Vanguard S&P 500 ETF (NYSEMKT:VOO) stands out for its low cost, broad diversification, and much higher payout.

Both funds track large-cap U.S. equities, but the Vanguard Mega Cap Growth ETF, like the name implies, focuses tightly on mega-cap growth stocks, mostly in technology. Conversely, the S&P 500 ETF mirrors the broader S&P 500. For investors weighing performance, diversification, and income, the comparison of the two funds brings distinct tradeoffs to the surface.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

The S&P 500 ETF is more affordable, charging less than half the Mega Cap Growth ETF’s expense ratio, and its yield is significantly higher--a potential draw for income-focused investors.

Performance & risk comparison

The Mega Cap Growth ETF has delivered a stronger 5-year return, turning $1,000 into $2,104, but this came with a much steeper maximum drawdown than the S&P 500 ETF--a sign of higher volatility and risk.

What's inside

The S&P 500 ETF tracks the S&P 500, holding 504 companies and offering a cross-section of the U.S. market: 36% in technology, 13% in financial services, and 11% in consumer cyclicals. Its top holdings--Nvidia, Apple, and Microsoft--each make up only a small fraction of assets. With 15.2 years under its belt, the ETF is designed for investors seeking broad, low-cost exposure and minimal sector tilts.

The Mega Cap Growth ETF, by contrast, is far more concentrated: 69% in technology, 16% in consumer cyclicals, and just 6% in industrials. The same three tech giants dominate its top spots, but at higher weightings. With only 66 holdings, it tilts aggressively toward mega-cap growth, offering the potential for outperformance--but at the cost of diversification and with heightened sensitivity to tech sector swings.

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

Foolish take

When deciding between the Vanguard S&P 500 ETF and the Vanguard Mega Cap Growth ETF, investors may struggle with the differences.

On the surface, the Mega Cap Growth ETF may hold more initial appeal due to its higher one-year returns. Moreover, it also outperformed the S&P 500 ETF in every time period up to 10 years.

However, a closer inspection may give certain advantages to the S&P 500 ETF, and not because of the lower expense ratio. For one, its 504 holdings mean it is more diversified than the 66 tickers in the Mega Cap ETF.

Additionally, the fact that the Mega Cap ETF invests 69% of its assets in technology makes it heavily dependent on that sector. While the 36% tech allocation in the S&P 500 fund is substantial, it makes it significantly less dependent on one industry.

Investors should also note the differences in the inception dates. Vanguard started the Mega Cap ETF in 2007 but waited until 2010 to establish the S&P 500 ETF. That meant that only the Mega Cap ETF endured the 2008 financial crisis, leaving the S&P 500 ETF with higher returns since inception.

Nonetheless, having similar inception dates would have probably meant higher returns for the Mega Cap ETF. Hence, assuming one has a higher risk tolerance, it is likely a more suitable choice than the more diversified S&P 500 fund.

Glossary

ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges its shareholders.
Diversification: Spreading investments across various assets or sectors to reduce risk.
Dividend yield: The annual dividend income expressed as a percentage of the investment's current price.
Assets under management (AUM): The total market value of assets that a fund manages on behalf of investors.
Beta: A measure of an investment's volatility compared to the overall market; higher beta means higher risk.
Max drawdown: The largest percentage drop from a fund's peak value to its lowest point over a specific period.
Sector concentration: The extent to which a fund's assets are invested in a particular industry or sector.
Mega-cap: Companies with extremely large market capitalizations, typically over $200 billion.
Growth stocks: Shares of companies expected to grow earnings faster than the market average.
Consumer cyclicals: Companies whose performance is closely tied to the economic cycle, such as retailers and automakers.
S&P 500: A stock market index tracking 500 of the largest publicly traded U.S. companies.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.