Beyond Nvidia and Meta Platforms: 1 Spectacular Vanguard ETF to Buy Now

Meta platforms it hit a new intraday high on October 4th. Investments in artificial intelligence (AI) are paying off for its core advertising business, and its augmented and virtual reality projects could have the potential to help boost revenue going forward.

Meta is now the hottest stock in the “Magnificent Seven” — a group of the largest technology-focused companies. But not long ago, Nvidia took the group higher. And Applewhich was a significant laggard in the market at the beginning of the year, has made a massive comeback and is up more than 33% in the last six months.

You might be surprised to learn that every Magnificent Seven stock other than Meta underperformed S&P 500 in the last three months. The slowdown could be due to valuation concerns that earnings need to catch up with rising share prices. Another factor is the broadening of the market rally, as stable stalwarts like it Coca cola, Home Depotand other blue chip components of Dow Jones Industrial Average have risen higher in recent months and contributed most of the index’s gains.

It’s useful to be aware of broader market swings and major economic events so you know why a stock may move a certain way in the short term. But often, many of these moves are just noise and can distract from what investing is all about, which is putting your hard-earned savings to work in companies that can grow in value over time and maybe even return investors’ capital through buybacks and dividends.

Here’s why Vanguard Mega Cap Growth ETF (MGK 1.30%) is full of combo potential and worth buying now.

Image source: Getty Images.

Leading from above

Investing in an ETF can be liberating because it can smooth out individual stock movements, focusing more on a particular theme, sector or investment objective. The fund can do well even when the market leader changes. It’s less about Apple versus Microsoft or Meta Platforms vis-a-vis parent company Google Alphabet and more about overall industry-wide growth.

Of course, lower risk can mean lower reward, since big gains in a single stock can only move an ETF so much. But overall, the pros of ETFs can outweigh their cons, especially for investors looking for a hands-off tool. The Vanguard Mega Cap Growth ETF is a bold bet on the biggest growth stocks, especially technology-focused companies.

Data source: Vanguard Group.

62.7% of the fund is invested in just 10 holdings, which is a higher concentration than you’ll find in an index like Nasdaq Composite or S&P 500, or even a similar ETF like Vanguard Growth ETF. The Growth ETF has exactly the same top 10 holdings as the Mega Cap Growth ETF, just a smaller weighting in top names and 188 total holdings compared to just 71 in the Mega Cap Growth ETF.

At its core, the Vanguard Mega Cap Growth ETF is a bet on the continued outperformance of the most successful and valuable companies relative to broader indexes. The Vanguard Mega Cap Growth ETF has slightly outperformed the Nasdaq Composite and the S&P 500 over the past 5- and 10-year periods due to the dominance of the largest market-cap growth stocks.

There’s reason to believe these companies have what it takes to continue leading the broader market for years to come.

The mega-head moment

Megacap growth companies should continue to do well as long as they meet investor expectations. Solid earnings growth can justify a higher share price and even valuation expansions. Artificial intelligence, cloud infrastructure, consumer spending, social media advertising revenue and enterprise software are all major trends impacting megacap tech stocks and are key drivers of revenue growth.

Recently, Alphabet and Meta Platforms have started paying small dividends to pass profits directly to shareholders — which is also a capital return strategy implemented by Microsoft and Apple. All four companies are buying back a ton of shares to reduce the impact of stock-based compensation and avoid dilution. As these companies continue to mature, their dividends could become an increasingly important aspect of the investment thesis.

With an expense ratio of just 0.07%, or $0.70 for every $1,000 invested, the Vanguard Mega Cap Growth ETF is a very low-cost way to invest in the most valuable, growth-oriented US companies . Its super-heavy structure increases the impact of a single major holding. Because of this, the fund can be volatile if there is a sell-off in several top holdings. Still, it’s one of those funds where investors know what they’re getting. In other words, if the fund starts to underperform the market, there is likely a selloff in big tech.

All in all, the Vanguard Mega Cap Growth ETF is a great way for long-term investors to target multiple top stocks without incurring hefty fees that can reduce returns over time.