VOOG vs. VUG: Which Vanguard Growth ETF Reigns Supreme?

Vanguard S&P 500 Growth ETF(NYSEMKT:VOOG) and Vanguard Growth ETF(NYSEMKT:VUG) both target large-cap U.S. growth stocks but differ in their underlying index methodologies, annual costs, and dividend yields.

Both the VUG ETF and the VOOG ETF provide targeted exposure to the largest growth-oriented companies in the U.S. stock market. While they share many top holdings, their underlying index methodologies create distinct portfolios. This comparison helps investors determine if the S&P 500 variant’s methodology and slightly higher cost are worth the tradeoff for its recent outperformance.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The one-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Cost-conscious investors may prefer the Vanguard Growth ETF, which features a rock-bottom expense ratio of 0.03%. While the Vanguard S&P 500 Growth ETF is slightly more expensive at 0.07%, the difference remains small. Furthermore, VOOG provides a slightly higher dividend yield of 0.54% and has performed better over time.

Performance & risk comparison

What’s inside

The Vanguard S&P 500 Growth ETF (VOOG) holds 212 stocks, allocating 48% to technology, 17% to communication services, and 10% to financial services. The fund launched in 2010 and tracks growth companies within the S&P 500 index. Its largest positions include Nvidia at 14.60%, Microsoft at 9.47%, and Apple at 6.42%. Over the trailing 12 months, it paid $1.72 per share in dividends.

The Vanguard Growth ETF (VUG) maintains a more concentrated portfolio of 166 stocks and has a heavier technology tilt at 53%. Other major sectors include communication services at 16% and consumer cyclicals at 12%. Launched in 2004, it tracks the CRSP U.S. Large Cap Growth Index. Top holdings include Nvidia at 13.29%, Apple at 12.30%, and Microsoft at 9.08%. This fund has a trailing-12-month dividend of $1.59 per share.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

First and foremost, I think both of these growth-focused ETFs are excellent options for investors. They have low fees, low betas (considering they’re growth-oriented), and have delivered strong total returns over the long term. Since 2010, VOOG and VUG have delivered annualized total returns of 16.6% and 16.7%, which have outperformed the S&P 500’s mark of 14.8% over the same time.

However, before investors start pouring money into these ETFs for their outperformance potential, it’s worth noting that they have rather large allocations to the Magnificent Seven. For example, Nvidia, Apple, and Microsoft account for 34.7% of VUG’s portfolio. The same three stocks equal 30.5% of VOOG’s. Similarly, all seven of the Magnificent Seven are in VUG’s top 10 holdings, and six are in VOOG’s (they left out Tesla, which is the 11th-largest position). Just know you’re making a big bet on big tech if you buy either of these ETFs.

Personally, I would lean ever-so-slightly toward VOOG, just because it already filters its selections through the S&P 500, holds roughly 50 more stocks, and is slightly less concentrated among its largest holdings, so it is a little better diversified. Lastly, VOOG’s P/E ratio of 34 is more reasonable than VUG’s 38, which makes it more appealing to me. Ultimately, both are great bets for growth-focused investors looking to outperform over the long haul.

Josh Kohn-Lindquist has positions in Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard Growth ETF. The Motley Fool has a disclosure policy.