The Vanguard Morningstar Mega Cap Growth ETF (NYSEMKT: MGK) has 51.8% of its investments concentrated in its five largest holdings: Nvidia, Apple, Alphabet, Microsoft, and Amazon, compared to 30% in the Vanguard S&P 500 ETF (NYSEMKT: VOO). As of September 25, 2023, the ETF features a 0.05% expense ratio and its top 10 holdings make up 69% of the fund. In comparison, the S&P 500 ETF has only 39.2% invested in its top 10 stocks.
On September 21, the Nasdaq Composite closed at an all-time high, while the S&P 500 was less than 0.5% from its peak, driven largely by the technology sector. Mega-cap growth stock valuations have decreased as investors reassess the sustainability of earnings growth tied to capital-intensive artificial intelligence (AI) investments. The Mega Cap Growth ETF has a price-to-earnings ratio of 31.2, which is now comparable to both the S&P 500 ETF and the Vanguard Morningstar Growth ETF (NYSEMKT: VUG).
Investors are wary of mega-cap growth stocks due to rising skepticism about their future profitability in AI. Historically, dominant companies have faced challenges from agile competitors, which underscores the risks of high concentration in portfolios like the Mega Cap Growth ETF, especially as it focuses heavily on the evolving and capital-intensive AI landscape.
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