Which Growth-Focused ETF is the Better Fit? Vanguard Morningstar Growth (VUG) or SPDR Small Cap Growth ETF (SLYG)?

The Vanguard Morningstar Growth ETF (NYSEMKT:VUG) provides low-cost exposure to large-cap giants, while the State Street SPDR S&P 600 Small Cap Growth ETF (NYSEMKT:SLYG) tracks smaller companies with strong growth characteristics at a slightly higher price.

Growth investing can look very different depending on where you look in the market. This comparison pits a massive large-cap fund against a targeted small-cap strategy. While both seek companies with expanding earnings and sales, their portfolios and risk profiles differ substantially due to the size, maturity, and market positions of the businesses they hold. One provides exposure to established leaders, while the other offers the potential for high-octane expansion from smaller firms.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard Morningstar Growth ETF is the significantly more affordable option for growth seekers, carrying a razor-thin expense ratio of just 0.03% compared to 0.15% for the State Street SPDR S&P 600 Small Cap Growth ETF. While neither is primarily designed for income, the State Street fund provides a slightly higher payout. This cost difference can represent a meaningful drag on total returns when compounded over several decades.

Performance & risk comparison

What's inside

The Vanguard Morningstar Growth ETF focuses on 166 large-cap stocks, and its largest positions include NVIDIA (NASDAQ:NVDA) at 13.63%, Apple (NASDAQ:AAPL) at 12.49%, and Microsoft (NASDAQ:MSFT) at 10.13%. Its sector tilt is heavily weighted toward technology at 58%, followed by communication services at 15% and consumer cyclical at 11%. The fund was launched in 2004. Vanguard Morningstar Growth ETF has paid $0.35 per share over the trailing 12 months, which, on its recent ~$92.06 share price, works out to a 0.4% yield.

In contrast, the State Street SPDR S&P 600 Small Cap Growth ETF holds 350 smaller companies, including Formfactor (NASDAQ:FORM) at 1.39%, Viasat (NASDAQ:VSAT) at 1.18%, and Protagonist Therapeutics (NASDAQ:PTGX) at 1.08%. Its sector mix is more balanced than its large-cap counterpart, with industrials at 18%, technology at 17%, and healthcare at 16%. The fund was launched in 2000. State Street SPDR S&P 600 Small Cap Growth ETF has paid $0.78 per share over the trailing 12 months, which, on its recent ~$109.43 share price, works out to a 0.7% yield.

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Which looks like the better buy

When comparing the Vanguard Morningstar Growth ETF (VUG) and the State Street SPDR S&P 600 Small Cap (SLYG), investors should consider several key factors. Let's see what they tell us about each fund.

First, we should discuss the differing strategies of each fund. While both funds are growth-focused ETFs, each targets a different slice of the market. VUG holds large-cap and mega-cap growth stocks. SLYG, on the other hand, targets small-cap growth stocks. SLYG, on the other hand, targets small-cap growth stocks. SLYG also holds more than twice as many stocks as VUG.

Two other important factors are historical performance and income potential. Turning to performance first, VUG has a clear edge. VUG has generated a total return of 93% over the last five years, with a compound annual growth rate (CAGR) of 14%. SLYG, meanwhile, has delivered a total return of 30%, with a CAGR of 5.4%. As for income potential, neither fund boasts a massive dividend yield. However, SLYG's dividend yield is higher at 0.7%, compared with 0.4% for VUG.

One final factor to weigh is cost. Both funds have low expense ratios. Yet VUG's 0.03% is among the lowest in the ETF universe. A person who invests $10,000 in VUG should expect to pay only $3 per year in annual fees. SLYG's 0.15% expense ratio would generate $15 per year in fees for the same investment amount.

In summary, although VUG and SLYG are both growth-focused ETFs, they offer contrasting profiles. SLYG is best for investors who want to diversify away from the large- and mega-cap tech stocks that dominate so many portfolios and indexes. Ultimately, however, VUG boasts several key advantages, including historical performance and fees that will appeal to many growth-oriented investors.

Jake Lerch has positions in Nvidia and Vanguard Morningstar Growth ETF. The Motley Fool has positions in and recommends Apple, FormFactor, Microsoft, Nvidia, and Vanguard Morningstar Growth ETF. The Motley Fool recommends Protagonist Therapeutics. The Motley Fool has a disclosure policy.