If I Could Invest $1,000 in Just 1 ETF in August, I'd Pick This Clear Standout Over the Vanguard S&P 500 ETF (VOO)

Earlier this year, the Vanguard S&P 500 ETF became the first exchange-traded fund (ETF) to surpass $1 trillion in assets. The ETF has grown in size thanks to its simplicity. It tracks the S&P 500 index and charges a mere 0.03% expense ratio, or $0.30 per $1,000 invested. Many brokerages allow users to invest in fractional shares of the ETF.

With low fees and the ability to invest a customized dollar amount in the ETF rather than full-share increments, the Vanguard S&P 500 ETF has become a popular choice for getting diversified exposure to the U.S. stock market.

However, if given $1,000 to invest in any ETF in August, I'd choose the Vanguard Communication Services ETF (NYSEMKT: VOX) with its slightly higher 0.09% expense ratio, instead of the Vanguard S&P 500 ETF. Here's why.

Image source: Getty Images.

Customizing ETF holdings with investment objectives

The Vanguard S&P 500 ETF hit a new all-time closing high on Aug. 7, finishing the session at $710.71 per share. A staggering 38% of the ETF is invested in tech stocks. And despite owning over 500 components, just 25 of them account for over half of the ETF.

The S&P 500 is now a growth-stock-focused index, and it's not as well diversified in dividend and value stocks as it used to be. So some investors may prefer to simply buy their favorite growth stocks and support those holdings with value- and income-focused ETFs. Or conversely, buy the Vanguard Morningstar Growth ETF or Vanguard Morningstar Mega Cap Growth ETF and support those holdings with individual, dividend-paying value stocks.

A sector with high growth potential at an inexpensive valuation

What makes the Vanguard Communication Services ETF unique is its heavy concentration in a handful of growth stocks. Alphabet and Meta Platforms make up 42.5% of the ETF. Throw in Walt Disney and Netflix, and that's over half the ETF in just four stocks.

Even with high-profile growth stocks like Alphabet and Meta Platforms, the ETF is chock-full of dividend-paying value stocks. Legacy media companies, such as Comcast, and telecommunications companies like Verizon Communications and AT&T tend to sport inexpensive valuations and high yields.

The Vanguard Communication Services ETF bets big on a few key growth stocks, but its supporting cast is mostly stodgy value stocks, whereas the Vanguard S&P 500 ETF is heavily concentrated in many megacap and large-cap growth stocks. That's why the Vanguard Communication Services ETF has a dirt cheap 17.1 price-to-earnings (P/E) ratio as of June 30 compared to a 27.5 P/E for the Vanguard S&P 500 ETF. Communications is the second-cheapest sector by P/E ratio, just ahead of financials, which may come as a surprise, given that so much of the sector's weighing is in hyperscalers Alphabet and Meta Platforms.

Data source: Vanguard.

The top growth stocks in the Vanguard Communication Services ETF are surprisingly cheap. Alphabet is up 75.9% in the last year, but the rally in its stock price has been driven by earnings growth. So even after its recent run-up, it still fetches a 17.2 forward P/E.

WBD PE Ratio (Forward) data by YCharts

Meta Platforms, Netflix, and Disney are all down big from their all-time highs, even though their earnings are strong. Eight of the 10 largest holdings in the Vanguard Communication Services ETF have forward P/E ratios under 21. For context, the forward P/E ratio of the S&P 500 is 20.6.

A balanced ETF to buy in August

The Vanguard Communication Services ETF is a great buy for investors seeking quality growth stocks at attractive valuations, supported by value and high-dividend-yield stocks. The Vanguard S&P 500 ETF, on the other hand, is far more sensitive to continued investor excitement for artificial intelligence (AI) stocks, especially red-hot semiconductor companies. AI spending could pay off big-time in the long run, but the more the S&P 500's valuation expands, the more pressure falls on companies to deliver on loftier expectations.

Despite its value tilt, it's worth noting that the Vanguard Communication Services ETF isn't devoid of high-flying growth stocks. Video game companies like Take Two Interactive and Roblox tend to sport premium valuations. And Space Exploration Technologies (NASDAQ: SPCX) is already the 12th-largest holding in the ETF as of June 30 -- making it the highest percentage weighting among the nine Vanguard ETFs that bought SpaceX in June. The ETF's weighting in SpaceX will increase as more SpaceX shares are unlocked. And since Vanguard classifies SpaceX as a communications stock, the Vanguard Communications Services ETF is the only Vanguard sector ETF that is buying it.

Before the end of the year, SpaceX could become a top-five holding in the Vanguard Communication Services ETF, which would make the ETF's valuation more expensive, but it would still likely trade at a steep discount to most other sector ETFs.

Investors who don't mind complementing the earnings-driven growth narrative of the ETF's top holdings with a high-flying, volatile stock like SpaceX may still find the Vanguard Communications Services ETF an appealing buy in August.

Daniel Foelber has positions in Netflix and Walt Disney and has the following options: short August 2026 $100 calls on Walt Disney and short August 2026 $110 calls on Walt Disney. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Netflix, Roblox, Take-Two Interactive Software, Vanguard Morningstar Growth ETF, Vanguard Real Estate ETF, Vanguard S&P 500 ETF, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends Comcast, T-Mobile US, and Verizon Communications. The Motley Fool has a disclosure policy.