Is Vanguard's Growth ETF a Buy at a Record High?

Shares of the Vanguard Morningstar Growth ETF (NYSEMKT:VUG) set a record high of around $92 on Monday. That's up about 31% from the fund's closing low on March 30.

The price also reflects a 6-for-1 share split in April, which gave each investor six shares for every one they owned without changing what their stake was worth.

Step back, and the record caps a strong decade. With dividends, the fund has returned around 18.2% a year for the last 10 years, based on its dividend-adjusted closing prices. The Vanguard S&P 500 ETF (NYSEMKT:VOO) returned around 15.5% a year for the same span.

The edge adds up over time. A $10,000 investment in the growth fund 10 years back would have reached around $53,000, versus about $42,000 for the S&P 500 fund.

Is the growth fund still worth buying at a record?

Image source: Getty Images.

It owns the same giants, just more of them

The growth fund has 147 stocks, though its money is far from split evenly. On June 30, its 10 biggest holdings made up about 63% of its assets, according to Vanguard, led by Nvidia at 12.6% and Apple at 11.7%.

The S&P 500 fund's top 10 accounted for about 38% of its assets on the same date. And the two lists look a lot alike. Nine of the 10 companies at the top of the growth fund are also in the S&P 500 fund's top 10.

In other words, the growth fund doesn't own a different group of winners. It owns the same mainly tech companies, in far bigger doses, with about 360 fewer stocks around them.

Sure, those bigger weights carry a steeper price. Vanguard put the average price-to-earnings ratio for the growth fund's stocks at 35.6 at the end of June, against 27.5 for the S&P 500 fund. Put another way, a buyer of the growth fund pays around 30% more for every dollar of the underlying companies' earnings.

I think faster earnings growth at companies like Nvidia justifies part of that premium. But it also means more of that growth is already priced in, and the fund needs it to keep showing up.

The lead came in bursts

The growth fund's edge over the S&P 500 fund didn't build steadily, though. Most of it came in a few strong years.

In 2022, the growth fund fell around 33%, including dividends, while the S&P 500 fund dropped about 18%. Then it rebounded harder, climbing about 47% in 2023 and 33% in 2024, against about 26% and 25% for the S&P 500 fund. This year's been quieter. As I write this, the growth fund is up around 13% in 2026 including dividends, a bit behind the S&P 500 fund's 14%.

Measured over five years rather than 10, the lead almost disappears. For the five years ending June 30, the growth fund returned 13.18% a year, according to Vanguard, but the S&P 500 fund returned 13.36%. Even with the growth fund's gains since then, it's ahead by under half a percentage point a year over the last five years.

And the growth fund got there with bigger swings. In the last three years, the standard deviation of its monthly returns (a measure of how widely they move around) was about 17%, according to Vanguard, but the S&P 500 fund's was about 13%. So an investor who owned the growth fund for the five years through June had a rougher ride for a little less money.

Worth buying at a record?

The record alone isn't a reason to stay away. A fund like this can hit new highs often in a rising market, and its previous record close was just last Friday.

At this price, a buyer gets the market's biggest growth companies at heavy weights, at about 36 times earnings as of June 30. And it comes in a fund that fell much harder than the S&P 500 fund the last time these companies stumbled.

Yes, the expense ratio of 0.03% (or $3 a year for a $10,000 investment) makes it a cheap way to own some of the best businesses in the world. But the fund's 2.7-percentage-point annual lead over the past decade came in an arguably unusual run for the largest growth stocks -- and 2022 showed how much of it one rough year can wipe out.

To me, the fund is worth considering here for investors that want more exposure to the biggest growth companies than an S&P 500 fund offers. I'd just see it as a bigger bet on companies the S&P 500 fund already owns, not an upgrade over it. And I'd probably add shares gradually rather than in one go.

Daniel Sparks and his clients have positions in Apple. The Motley Fool has positions in and recommends Apple, Nvidia, Vanguard Morningstar Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.