The "Impressive Seven" Shares May Aid the Immoveable Vanguard ETF in Transforming $200,000 into $1,000,000 within 15 Years
Vanguard Mega Cap Growth ETF Outperforms S&P 500 over Decade
The Vanguard Mega Cap Growth ETF (MGC) has been a standout performer in the market, with its annual return accelerating significantly over the past decade. The ETF, which tracks the CRSP U.S. Mega Cap Growth Index, has delivered a total return of 308.1% over the last ten years, outperforming the broader S&P 500 ETF's 284.2% total return during the same period.
The MGC's portfolio is heavily concentrated, with the top ten holdings making up about 40.7% of the ETF's total assets. The top stocks in the MGC, and their approximate portfolio weights, are:
- Apple Inc - 8.40%
- Microsoft Corp - 7.81%
- NVIDIA Corp - 7.03%
- Amazon.com Inc - 4.21%
- Meta Platforms Inc Class A - 2.88%
- Alphabet Inc Class A - 2.41%
- Eli Lilly and Co - 2.07%
- Berkshire Hathaway Inc Class B - 2.03%
- Alphabet Inc Class C - 2.00%
- Broadcom Inc - 1.90%
The ETF targets the largest 37% of the S&P 500 components by market cap, with a strong emphasis on mega-cap growth stocks. Its portfolio is highly concentrated in technology, which accounts for more than half of the holdings, reflecting a bias towards the largest mega-cap growth companies.
The MGC's focus on growth-oriented mega-cap stocks has been a key factor in its strong historical performance. Over the past five years, the ETF has delivered a return of 17.8%, and over the past three years, it has achieved a return of 20.7%.
The MGC's success can also be attributed to the performance of the Magnificent Seven, a group of seven large technology stocks that make up over half of the ETF's total value. These companies, which include Apple, Microsoft, NVIDIA, Amazon, Meta, and Alphabet, have been leaders in their respective sectors and have delivered impressive returns over the past decade, with a median return of 886%.
The Magnificent Seven are increasingly focusing on artificial intelligence (AI), with Microsoft, Amazon, Alphabet, and Tesla developing their own AI models and chatbots. Nvidia, which has become the poster child for the AI revolution due to its powerful graphics processing units (GPUs) for data centers, is also a key holding in the MGC.
The MGC offers a simple way for investors to buy the Magnificent Seven stocks, as well as other large, growth-oriented U.S. companies. The ETF's compound annual return of 13% since 2007 has beaten the S&P 500's average annual gain of 10.1% over the same period.
However, the MGC may not be suitable for all investors. It is primarily a good buy for those with a diversified portfolio that has little or no exposure to the Magnificent Seven stocks already. With a combined market capitalization of $17 trillion, these companies represent a significant portion of the U.S. economy, and adding the MGC to a portfolio could result in an over-concentration in technology stocks.
Global consulting firm PwC predicts that AI will add $15.7 trillion to the global economy by 2030, and a lot of that value will be driven by the tech giants in the Vanguard ETF. As such, the MGC's performance could be maintained by AI for the next few years.
Investing in the MGC could provide a significant return for investors. A 13% annual return could turn an investment of $200,000 into $1 million within around 13 years and three months. However, as with any investment, there is always the risk of loss, and investors should carefully consider their own financial situation and risk tolerance before making any investment decisions.
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