1 Stock-Split Vanguard ETF to Buy as the S&P 500 Turns Positive on the Year
Key Points
Betting big on large tech-focused companies has paid off in recent years.
But the strategy comes with significant volatility, which may not suit risk-averse investors.
The Vanguard Mega Cap Growth ETF is a good choice for investors looking to take larger stakes in multiple megacap growth stocks rather than build a core portfolio in a few favorites.
- 10 stocks we like better than Vanguard World Fund - Vanguard Mega Cap Growth ETF ›
As of market close on March 27, the S&P 500 (SNPINDEX: ^GSPC) was down 7% year to date, the Nasdaq Composite (NASDAQINDEX: ^IXIC) had fallen 9.9%, and the Vanguard Mega Cap Growth ETF (NYSEMKT: MGK) had slipped 13.9%.
Fast-forward to market close on April 16, and the Nasdaq is now outperforming the S&P 500 -- up 3.7% YTD compared to a 2.9% gain for the S&P 500. Meanwhile, the Mega Cap Growth ETF has nearly recovered all of its 2026 sell-off and is now down just 0.7% YTD.
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The market's sudden reversal is a reminder of how emotions and uncertainty can cause multitrillion-dollar swings in the U.S. stock market. But investors looking to buy may be hesitant, given how much the market has bounced. Rest assured, there are plenty of top growth stocks that remain excellent buys now.
The Vanguard Mega Cap Growth ETF is undergoing a 5-for-1 split on April 21, which will quintuple the number of outstanding shares while reducing the share price from around $410 at the time of this writing to $82 per share post-split.
Here's why the ETF is a great buy even after largely recovering its loses form earlier in the year.
Image source: Getty Images.
Betting big on market leaders
The Vanguard Mega Cap Growth ETF has crushed the S&P 500 over the last decade, with a 427% total return compared to the index's 301.2%. The outperformance stems from the ETF's concentration in a handful of companies and sectors.
|
Sector |
Vanguard Mega Cap Growth ETF |
Vanguard S&P 500 ETF (NYSEMKT: VOO) |
|---|---|---|
|
Technology/Communications |
68.1% |
43.2% |
|
Consumer Discretionary |
15.8% |
9.9% |
|
Industrials |
6.6% |
9% |
|
Healthcare |
5.5% |
9.5% |
|
Real Estate |
1.8% |
1.9% |
|
Financials |
1.2% |
12.6% |
|
Consumer Staples |
0.5% |
5.3% |
|
Basic Materials |
0.5% |
2.1% |
|
Energy |
0% |
4% |
|
Utilities |
0% |
2.5% |
Data source: Vanguard.
Over half of the S&P 500 index is invested in just 25 stocks. But the Vanguard Mega Cap Growth ETF takes concentration to a whole new level. Roughly half the ETF is invested in just five stocks -- Nvidia, Alphabet, Apple, Microsoft, and Amazon. And 80.4% of the fund is invested in 20 stocks.
A low-cost way to get outsized exposure to megacap growth stocks
Many growth-focused funds are overly diversified, sector-focused, or have high fees. The Mega Cap Growth ETF is unique in that it is passively managed yet heavily concentrated in growth stocks across stock market sectors. The passive management structure allows Vanguard to charge a dirt cheap 0.05% expense ratio. So investors can rest easy knowing they aren't racking up high fees.
The Vanguard Mega Cap Growth ETF is best suited for investors looking to carve out a position in leading growth stocks, rather than choosing Nvidia over Broadcom or Microsoft over Amazon. However, the fund's structure makes it inherently volatile. Consider that ETF has fallen by over 20% from its high four times in the last decade, and two of those times were an over 30% drawdown.
Investors who can stomach volatility and believe that leading tech-focused companies will continue to drive broader market gains may prefer buying the Vanguard Mega Cap Growth ETF over the Vanguard S&P 500 ETF. However, investors should not buy the ETF solely on its stock-split news.
As recent research by The Motley Fool shows, stock splits have mixed results. So it's better to base your investment decision on the ETF's holdings rather than on the stock-split news alone.
Should you buy stock in Vanguard World Fund - Vanguard Mega Cap Growth ETF right now?
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Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Microsoft, Nvidia, and Vanguard S&P 500 ETF and is short shares of Apple. The Motley Fool has a disclosure policy.
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