Is This Top-Performing Vanguard Fund Still A Buy?

Exchange-traded funds (ETFs) have revolutionized investing by giving investors easy access to diversified portfolios at low costs. Among ETF providers, Vanguard has built a reputation for investor-friendly practices and low fees. The company’s wide range of funds covers almost every corner of the market, from total stock indices to sector-specific offerings.

One Vanguard ETF that has caught the attention of growth-oriented investors is Vanguard Russell 1000 Growth ETF (VONG -1.07%). This fund has delivered impressive returns over the past few years, even outperforming the red S&P 500.

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However, with valuations stretched and economic uncertainties looming, investors may wonder if the Vanguard Russell 1000 Growth ETF can continue its market-beating ways. Let’s take a closer look at this high-speed fund to see if it still deserves a place in your portfolio.

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A power of growth

The Vanguard Russell 1000 Growth ETF tracks the Russell 1000 Growth Index, which consists of U.S. large-cap growth stocks. This index represents approximately 93% of the total market capitalization of all stocks listed on the US stock market. The fund aims to closely track the performance of the index, giving investors exposure to some of America’s fastest-growing large companies.

The Vanguard Russell 1000 Growth ETF has been an outstanding performer, with an annualized return of 23.6% since October 4, 2024. This return beats the performance of the S&P 500 over the same period, with the benchmark up about 20.5% this year. Even more remarkably, the fund has generated a total return of 357.6% over the past 10 years, assuming dividend reinvestment, making it one of Vanguard’s best-performing growth funds over this period.

Technology rich portfolio

The Vanguard Russell 1000 Growth ETF’s top holdings read like a who’s who of tech giants. Apple, Microsoftand Nvidia make up the top three positions, collectively representing over 34% of the portfolio. Other major holdings include Amazon, Meta platformsand Alphabet. This technology focus has been a key driver of the ETF’s outperformance in recent years.

However, this focus on technology also introduces some concentration risk. Technology stocks comprise nearly 60% of the fund’s assets. While this has boosted returns during tech bull markets, it could lead to underperformance if the sector faces headwinds. Fortunately for investors, a slowdown in this sector seems unlikely in the near term given the rapid progress in advanced artificial intelligence, robotics and autonomous vehicles.

Reduced costs increase returns

One of the key advantages of the Vanguard Russell 1000 Growth ETF is its minimal expense ratio of just 0.08%. The fund’s expense ratio is significantly lower than the 0.94% average for similar funds. These low fees mean that more of the fund’s returns are passed on to investors, improving long-term performance.

The ETF’s efficient, index-based approach also results in low turnover. The Vanguard Russell 1000 Growth ETF had a run rate of just 14.4% in its most recent fiscal year. The low turnover rate helps minimize trading costs and tax implications for shareholders.

Is the Vanguard Russell 1000 Growth ETF Still a Buy?

The Vanguard Russell 1000 Growth ETF gives investors exposure to some of the most innovative and fastest growing large companies in the United States. Its strong past performance and low fees make it an attractive option for growth-oriented investors. However, the fund’s strong technology focus and relatively high valuations (eg, price-to-earnings ratio of 36.8) introduce important risk factors to consider.

The Vanguard Russell 1000 Growth ETF has the potential to continue to outperform, but may experience more volatility than a broader market index fund such as Vanguard Total Stock Market ETF. This potential for increased volatility is due to its strong technology focus and premium valuation. However, for investors familiar with these specific risk factors, this ETF remains a compelling option to capture the growth potential of America’s leading companies.