Is This Low-Cost Megacap ETF a No-Brainer Buy for the Long Haul?

Investing in large and established businesses can be a great way to help protect your portfolio in the long run. And one way you can accomplish this is by investing in megacap stocks, which have market caps in excess of $200 billion. Not only are they established, but with valuations that high, they're also likely well-known to the average investor.

There's a growing number of megacap stocks, and you can gain exposure to them through an exchange-traded fund (ETF). The Vanguard Mega Cap Growth ETF (NYSEMKT: MGK) focuses on these types of stocks and has been outperforming the market this year. Plus, it has an extremely low expense ratio of just 0.07%.

Could this ETF be a no-brainer buy for your portfolio today?

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Many of the fund's stocks are in the tech sector

Tech stocks are among the most valuable in the world, so it should come as little surprise that they also take up the vast majority of the fund's portfolio. These types of stocks make up just under 70% of the megacap fund, and this heavy tilt may not appeal to risk-averse investors.

Tech stocks, however, have been soaring in recent years due to artificial intelligence (AI) and the related hype around it. Besides tech, the only other sector in double digits in this exchange-traded fund (ETF) is consumer discretionary, which makes up around 16% of its holdings.

One thing investors should be comfortable with is that the fund's top three holdings are big names in tech -- Nvidia, Apple, and Microsoft. Together, they make up over 38% of the ETF's portfolio.

How they perform will have a significant impact on how the overall fund does. There are 66 stocks in the ETF, but given its heavy focus on tech, it may not appear as diverse as it seems at first glance.

It has outperformed the market in eight of the past nine years

While all that exposure to tech may seem concerning, the reality is that it's more than paid off for investors. Tech stocks get a lot of attention when they're doing well, and growth investors gravitate toward companies with cutting-edge technologies.

This year, the ETF is up 18%, while the S&P 500 has risen by just 13% (returns as of Nov. 17). Including this year, the fund has outperformed the broader index in eight of the past nine years, going back to 2017. The only blemish was in 2022, when there was a broad sell-off in the tech sector. That year, the fund fell by 34%, which was far worse than the S&P 500's more modest decline of 19%.

If you look at the past decade, however, the fund has generated returns of more than 380% for investors, which is significantly higher than the returns of the more diversified S&P 500, which amassed 225% over the same time frame.

This, of course, doesn't mean that this pattern will continue. Historical returns are never a guarantee of how an investment will do in the future. However, it's also not surprising to see that, by investing in the top growth stocks in the world, you'd have performed better over the past decade than following a safer path, such as simply tracking the S&P 500.

Is this megacap ETF a good option for your portfolio?

I wouldn't call investing in this ETF a no-brainer option, simply because there's risk here. If you believe or are concerned about a possible AI bubble in the tech sector, this is probably not a fund you'll want to be holding.

The ETF can, however, appeal to investors who have many investing years left and want a simple investment they can buy and hold for the long run. While megacap stocks may be vulnerable to corrections in the near future, given their recent surge, that doesn't mean they won't recover, just as they did after a brutal year in 2022.

If you're willing to be patient and hold on, I think this can be a good fund to include in your portfolio -- if you're comfortable with the risk. With minimal fees and exposure to the top stocks in the world, the Vanguard Mega Cap Growth ETF can possibly set you up for market-beating returns in the long run.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. 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.