Better Growth ETF: QQQM vs. VGT

Not everyone prefers to take the same approach to investing. While some investors appreciate and prefer the guaranteed income of dividend stocks, others prefer the appreciation opportunities of growth stocks. Neither is better than the other, but growth stocks have been among the most popular stocks on the market over the past decade or so.

Growth stocks can often be volatile, so one of the best ways to take advantage of their potential while minimizing risk is through a growth-focused ETF. Two popular choices are the Invesco Nasdaq-100 ETF (NASDAQ: QQQM) and the Vanguard Information Technology ETF (NYSEMKT: VGT).

They've both been among the best-performing ETFs in recent years, but which is the better growth option? Let's see.

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Same goal, different approach

Although both ETFs have a growth focus, they approach it differently. QQQM mirrors the Nasdaq-100, an index that tracks the 100 largest non-financial companies listed on the Nasdaq stock exchange. VGT tracks the returns of the information technology (tech) sector.

There's a bit of overlap between the two, especially in the top holdings. Six of their top 10 holdings are the same:

Data sources: Invesco and Vanguard. QQQM percentages as of May 29; VGT as of April 30.

Both ETFs are heavily influenced by how these companies perform, but VGT's performance really rests on Nvidia, Apple, and Microsoft, as they account for over 43% of the ETF.

The difference with QQQM, however, is that it includes nontech companies that help cushion against tech-specific rough patches. Tech companies still make up the bulk of QQQM (63.6%), but a sector like consumer discretionary can help pick up some of the slack, accounting for 19.7% of the ETF.

Which ETF has been the better performer?

Since VGT began trading in January 2004, it has performed nearly identically to the Nasdaq-100 (QQQM wasn't created until October 2020). In recent years, however, VGT has edged out QQQM, though both have performed about as well as you could hope.

Data source: YCharts. Returns as of market close on May 29. QQQM returns are based on the Nasdaq-100.

Most of it can be attributed to the artificial intelligence (AI) boom and the sharp rise in tech stock valuations. You're bound to do well when your largest holding is up 1,200% in five years and 18,300% in the past decade (though Nvidia wasn't the largest holding all that time).

I wouldn't expect either ETF to continue averaging these returns over the long haul, but both are built to continue outperforming the market.

Which is the better growth ETF right now?

VGT has been one of the best-performing ETFs on the market in recent years, no doubt. Just this year, it's up 28% compared to QQQM's 20% (as of market close on May 29). But despite VGT's impressive run, I prefer QQQM as a long-term growth ETF for two key reasons.

To begin, because companies are classified by sector, VGT excludes key growth stocks like Alphabet, Amazon, and Meta Platforms. If I'm going to own a growth ETF, I want those companies included because they're tech blue chips with high growth potential. AI aside, all three companies have competitive moats that ensure they'll be premier companies for quite a while.

I also prefer the diversification QQQM offers that VGT doesn't. The "Magnificent Seven" stocks will have a sizable influence on their performances, but it's not entirely in the hands of a few companies.

I wouldn't make either ETF the bulk of my portfolio, but if you're looking for a good growth ETF that can play a major role, I would go with QQQM.

Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Micron Technology, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.