Embracing the Magnificent Holdings
When you delve into the realm of exchange-traded funds (ETFs), you unearth a treasure trove of opportunities offering a seamless path to embrace a diverse array of stellar stocks in one fell swoop.
The Vanguard Mega Cap Growth Index Fund ETF (NYSEMKT: MGK) stands as a stellar specimen. Almost 59% of its investment is anchored in the renowned “Magnificent Seven” stocks.
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The Allure of the Magnificent Seven
Spotting “index fund” in an ETF’s title acts as a signal that it mirrors the performance of an index. The Vanguard Mega Cap Growth Index Fund ETF does just that by tracking the CRSP US Mega Cap Growth Index.
Boasting a focus on U.S. megacap stocks brimming with robust growth potential, it’s no surprise that this Vanguard ETF harbors significant investments in the Magnificent Seven. Its top holding, Microsoft, constitutes a hefty 14.6% of the total portfolio. Coming in second is Apple at 12.69%.
The ETF also allocates 7.63% to Amazon and a matching 7.3% to Nvidia. Alphabet follows, representing 6.97% of the portfolio. Finally, the last duo of the Magnificent Seven, Meta Platforms and Tesla, hold 5.32% and 2.67% of the fund’s assets, respectively.
But where does the remaining 41% of the Vanguard ETF’s portfolio find its footing? Within 75 other stocks, many of which are megacap victors such as Eli Lilly and Visa. Not all of them fit the megacap category, though. For instance, the ETF maintains relatively modest stakes in Boeing and Lam Research, both with market caps below $130 billion.
Attributes to Admire
Investors will find much to applaud about the Vanguard Mega Cap Growth Index Fund ETF. Particularly over the past year, the ETF has soared over 50%, a reflection of its spotlight on megacap growth stocks.
This stellar performance is hardly a surprise, given that four of the Magnificent Seven stocks have surged over 50% in the last 12 months, with Nvidia and Meta spearheading the charge.
Looking back beyond recent history, over the past five years, the Vanguard Mega Cap Growth Index Fund ETF has posted an average annualized return of 19.59%. Since its inception in December 2007, the ETF has boasted an average annual return of 12.73%.
Vanguard is renowned for its minimal fees, and this megacap ETF shines on that front. The Vanguard Mega Cap Growth Index Fund ETF bears an annual expense ratio of just 0.07%, notably lower than the average expense ratio of similar funds at 0.96%.
Is the Vanguard ETF a Game-Changing Investment?
The primary caveat against considering the Vanguard Mega Cap Growth Index Fund ETF mirrors the core weakness of the Magnificent Seven – their valuation. The ETF’s 82 stocks carry an exorbitant average price-to-earnings ratio of 38.3x.
True, this number represents a trailing 12-month multiple. In all likelihood, the ETF’s valuation may appear marginally more appealing with a forward earnings multiple. Nevertheless, this ETF doesn’t represent a straightforward, unequivocal buy.
Nevertheless, the world of megacap growth stocks, including entities beyond the Magnificent Seven, displays potential for substantial long-term gains. For investors in pursuit of robust growth prospects, willing to navigate potentially intense volatility, the Vanguard Mega Cap Growth Index Fund ETF emerges as an enticing choice.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, sits on The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, also serves on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is likewise a board member. Keith Speights holds positions in Alphabet, Amazon, Apple, Meta Platforms, and Microsoft. The Motley Fool maintains positions in and recommends Alphabet, Amazon, Apple, Lam Research, Meta Platforms, Microsoft, Nvidia, Tesla, and Visa. The Motley Fool endorses the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool operates with a disclosure policy.
The expressions and opinions articulated herein represent the views and opinions of the author and do not necessarily mirror those of Nasdaq, Inc.
