This Once-Unstoppable Low-Cost Vanguard ETF Is Underperforming the S&P 500 in 2025. Here’s Why It’s a Buy Now. #NewsETFs

Technology stocks like Nvidia (Nasdaq: NVDA), Apple (NASDAQ: AAPL)and Microsoft (NASDAQ: MSFT) have increased by severalfold over the last decade — helping drive the S&P 500 (^GSPC -1.59%) to new heights. But year to date, tech has been one of the worst-performing stock market sectors. A sell-off in the sector can have a major impact on the broader market because tech makes up over 30% of the S&P 500.

It’s not just mega-cap tech stocks that are down big year to date. The consumer discretionary sector, led by Amazon (NASDAQ: AMZN) and Tesla (NASDAQ: TSLA)has also sold off. Alphabet (Nasdaq: Goog) (NASDAQ: GOOGL)which is in the communications sector, is down over 10% year to date at the time of this writing.

Folks looking to scoop up shares in these top companies may want to consider an exchange-traded fund (ETF). The Vanguard Mega Cap Growth ETF (NGK -2.92%) has a mere 0.07% expense ratio, or just $0.70 for every $1,000 invested. As the name implies, the fund is highly concentrated in the largest growth stocks — making it particularly vulnerable to the current sell-off. However, in the long term, the fund has proven to be a simple yet effective way to compound wealth. Here’s why it’s a buy now.

Image source: Getty Images.

Concentration has paid off for the Vanguard Mega Cap Growth ETF

Between the start of 2015 and the end of 2024, the Vanguard Mega Cap Growth ETF increased by a staggering 363% — significantly beating the S&P 500.

MGK Total Return Level data by YCharts

As companies like Nvidia, Apple, and Microsoft have surpassed $3 trillion market caps, they have become a larger share of the S&P 500 — helping drive strong S&P 500 returns. But the Vanguard Mega Cap Growth ETF is even more concentrated in these top names. In fact, the ETF has a staggering 65.4% invested in its top 10 holdings. As you can see in the table, the fund has a much higher weighting in top growth stocks than the Vanguard S&P 500 ETF (FLIGHT -1.60%)which mirrors the performance of the index.

Data source: Vanguard.

Concentration can be a double-edged sword. When these stocks are doing well, the ETF has an excellent chance of outperforming the S&P 500. But it’s very difficult for the fund to keep pace with the S&P 500 when they are falling.

The ETF is holding up despite losses in key names

The S&P 500 was down slightly year to date before last Friday’s rally, which boosted the index into positive territory. Surprisingly, the Mega Cap Growth ETF is only down 1.5% year to date because gains in Eli Lilly, Visa, and Meta Platforms have largely offset sizable losses in Tesla, Broadcom, and Alphabet.

LLY data by YCharts

The ETF can hold its ground even if the top names are underperforming — so long as there are outsize gains in other pockets of the market. Healthcare and financials have been two of the strongest sector performers so far this year. And unsurprisingly, it’s been top growth stocks in those sectors that have been producing big gains.

Netflix, Intuitive Surgicaland Mastercard — which are top-20 holdings in the fund — are all up over 9% year to date. In sum, many major tech stocks have been selling off, but that doesn’t mean that all growth stocks are tumbling.

Using the Vanguard Mega Cap Growth ETF to your advantage

The Vanguard Mega Cap Growth ETF is an excellent way to achieve diversification across some of the largest growth stocks by market cap. Since the fund has a minimum investment of just $1, investors can choose the dollar amount that is best for them instead of trying to scoop up shares or fractional shares of several different stocks.

The fund can be used to gain exposure to mega-cap growth without building an investment thesis for a specific company. For example, the fund has a lot of exposure to software, hardware, artificial intelligence, cloud infrastructure and services, media, entertainment, payment processing, drugmakers, and other themes.

Before buying the fund, you’ll want to ensure you know of any redundancies between its holdings and what is already in your portfolio. For example, if you have 5% of your portfolio in Apple stock, and you don’t necessarily want that position to get any bigger, this fund may not be a good fit for you because it has an over 13% weighting in Apple. So, if you do have duplicates in any stocks, you’ll want to make sure these are companies you are looking to grow your position in.

You can also think of the Vanguard Mega Cap Growth ETF as a plug-and-play passive investment choice when you don’t have a compelling alternative. Investors who regularly put more money to work in the market may encounter instances where there aren’t a lot of stocks that stand out as screaming buys. And if there are a few high-conviction standouts, you may already have a sizable position in those companies and don’t want to get even more concentrated in those names. In that case, having a list of ETFs you like can be useful because it takes the pressure off the decision-making process.

In sum, the Vanguard Mega Cap Growth ETF is an excellent ETF to buy if you are looking to increase your exposure to companies like Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla, as well as industry-leading growth-focused companies in other sectors.