How Vanguard Growth ETF Became a Consistent Market-Beater

Every investor wants to find the top stocks and ride them as far as they'll go. For those who concentrate on growth stocks, finding the biggest winners is the hallmark of ultimate success. Both here at The Motley Fool and elsewhere, the top-performing stock portfolios often feature just a small handful of stocks that have generated life-changing returns, and those few big winners have been enough to turn what would have been adequate performance into market-crushing returns.

Yet not every growth investor has the time, inclination, or discipline to find winning individual stocks and hold them for the long term. For them, exchange-traded funds offer an attractive way to get growth-stock exposure without the high maintenance of having to do ongoing research. Vanguard Growth ETF (NYSEMKT: VUG) has been a great choice for investors seeking to profit from growth stocks, and as you learned in the first installment of this three-article series for the Voyager Portfolio, Vanguard Growth follows a relatively simple methodology that has identified some truly great companies. In this article, you'll find out exactly how well Vanguard Growth has done compared to its peers.

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How Vanguard Growth has knocked it out of the park

The Vanguard Growth ETF has generated an exceptional long-term track record. Its average annual return of 15.13% over the past 15 years tops the typical growth ETF by nearly two percentage points per year, and it outperforms the S&P 500's strong returns over the period as well. Looking back a decade, Vanguard Growth's returns are even better, averaging 16.56% per year. Those figures are all strong enough to put Vanguard Growth among the top fifth of all growth ETFs in its category.

Looking more closely at performance from year to year, Vanguard Growth has taken an aggressive stance toward investing in growth stocks that has led it to see larger moves in both directions than the overall market. During strong years for the broader stock market, Vanguard Growth has tended to outperform dramatically. For instance, in 2023, the fund returned nearly 47% for investors, beating the broader growth ETF category by 10 full percentage points. Vanguard Growth showed similar strength in 2019, 2020, 2021, and 2024.

However, investors in Vanguard Growth have had to endure larger drawdowns during bad years. In 2022, for instance, the fund was down 33%, which put it in the bottom 30% of growth-oriented ETFs and trailed its category by several percentage points. Performance so far in 2026 has also lagged the broader market, and declines in 2018 were also slightly worse than the broader market's performance.

Don't expect much income

One thing that's important for investors to understand about Vanguard Growth is that they're not going to get much in the way of dividend distributions from the fund. That's likely not a deal-breaker for most growth investors, as growth-focused companies almost always take any available capital they have and reinvest it back into the business to capture expansion opportunities.

Indeed, in some ways, investors in Vanguard Growth might be surprised at how much the fund actually does pay out. Distributions last year amounted to roughly $2 per share, which works out to a yield of around 0.4% to 0.5% based on prevailing share prices. Those distributions amounts have grown slightly over the past several years, as even some of the biggest growth stocks in the market have diverted at least a small portion of their free cash flow toward dividend payouts.

Most importantly for investors, Vanguard Growth ETF has been tax-efficient. Even as growth stocks have soared, the fund has successfully managed its portfolio to avoid costly capital gains distributions. That's a key advantage that the ETF structure affords over traditional mutual funds.

Can Vanguard Growth keep up the pace?

Vanguard Growth has done a good job, but can it stay strong even as markets hit turbulence? The final article for the Voyager Portfolio on this ETF will examine that question more closely.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Growth ETF. The Motley Fool has a disclosure policy.