Growth ETFs: VONG Has Delivered Excellent Returns, But VBK Provides More Diversification

The choice between Vanguard Russell 1000 Growth ETF (NASDAQ:VONG) and Vanguard Small-Cap Growth ETF (NYSEMKT:VBK) hinges on whether an investor seeks exposure to established large-cap technology giants or smaller growth companies.

Both funds serve as core growth-building blocks, but they operate at opposite ends of the market capitalization spectrum. While the Vanguard Russell 1000 Growth ETF tracks the Russell 1000 Growth Index to capture momentum from the largest U.S. companies, the Vanguard Small-Cap Growth ETF targets smaller firms that may be in earlier, more aggressive expansion phases.

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.

These Vanguard funds are among the most affordable in their categories. VBK has a slight edge with an expense ratio of 0.05% compared to VONG’s 0.06%. Both funds currently offer an identical trailing-12-month distribution yield of 0.40%.

Performance & risk comparison

What's inside

The Vanguard Russell 1000 Growth ETF (VONG) provides concentrated exposure to the major growth engines of the U.S. market, with technology firms accounting for 51% of its weight. Its portfolio includes 394 holdings, and its largest positions are Nvidia (NASDAQ:NVDA) at 13.23%, Apple (NASDAQ:AAPL) at 11.13%, and Microsoft (NASDAQ:MSFT) at 8.70%. This fund was launched in 2010 and has a trailing-12-month dividend of $0.56 per share. It may appeal to those seeking stability from dominant, cash-rich technology companies that have led recent market cycles.

The Vanguard Small-Cap Growth ETF (VBK) offers a different risk profile by tracking the CRSP US Small Cap Growth Index across 579 holdings. Its sector allocation is more balanced than the large-cap fund, with technology at 26%, industrials at 25%, and healthcare at 15% of the portfolio. Its largest positions include Bloom Energy (NYSE:BE) at 1.11%, Ciena (NYSE:CIEN) at 1.10%, and Comfort Systems USA (NYSE:FIX) at 0.95%. Launched in 2004, the fund paid $1.58 per share over the trailing 12 months. Because it lacks the heavy concentration in mega-cap technology, it may provide useful diversification for portfolios already tilted toward the S&P 500.

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Which looks like the better buy

The Vanguard Russell 1000 Growth ETF (VONG) and Vanguard Small-Cap Growth ETF (VBK) are both exchange-traded funds (ETFs) that provide exposure to growth stocks. However, there are some key differences between these funds. Here’s how they match up.

First, there’s VONG. The fund tracks the Russell 1000 Growth index. By extension, the fund has about 400 holdings. About 55% of its holdings are comprised of tech megacaps such as Nvidia, Apple, Microsoft, Broadcom (NASDAQ:AVGO), Amazon (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOG). Since it is a passive index fund, its fees are low. The fund has an expense ratio of only 0.06%, making it extremely affordable. As for income, the fund has only a very modest dividend yield of 0.4%, since its focus is on growth-oriented companies that prioritize investment and share buybacks over dividend payouts. Turning to performance, VONG has delivered excellent long-term gains. Over the last 16 years, VONG has generated a total return of 1,100%, equating to a compound annual growth rate (CAGR) of 17.1%. The S&P 500, by contrast, has delivered a 774% return, with a CAGR of 14.8%.

Then, there’s VBK. This fund focuses on the small-cap growth sector. It holds nearly 600 stocks, offering greater diversification than VONG. It also has far less exposure to the tech sector, with only about 26% of its holdings in tech, while VONG has closer to 64% of its holdings in technology overall. VBK also has low fees. Its expense ratio of 0.05% is among the lowest investors will find. However, like VONG, its 0.4% dividend yield will not offer much appeal to income-oriented investors. Finally, as for performance, VBK has lagged both VONG and the S&P 500. Over the last 16 years, it has delivered a total return of 507%, with a CAGR of 12.2%.

In summary, many investors will favor VONG given its low expense ratio and excellent long-term performance. However, for investors seeking to diversify their portfolios away from big tech, VBK offers a growth-oriented alternative with even lower fees than VONG.

Jake Lerch has positions in Alphabet, Amazon, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Bloom Energy, Broadcom, Ciena, Comfort Systems USA, Microsoft, Nvidia, and Vanguard Index Funds - Vanguard Small-Cap Growth ETF. The Motley Fool has a disclosure policy.