VONG vs. MGK: Is Diversified Growth or Mega-Cap Concentration Better for Investors?

The Vanguard Mega Cap Growth ETF (MGK 1.76%) and Vanguard Russell 1000 Growth ETF (VONG 1.81%) are both low-cost, passively managed funds from Vanguard focused on U.S. large-cap growth stocks.

MGK focuses on the largest mega-cap names, while VONG tracks a broader index that encompasses a wider range of large-cap growth companies. Here’s how the two stack up for investors weighing the trade-offs between concentration and diversification.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

Both funds are equally affordable, charging a 0.07% annual expense ratio. VONG edges ahead on dividend yield, however, which may appeal to those seeking a marginally higher income stream from growth stocks.

Performance & risk comparison

What's inside

VONG tracks the Russell 1000 Growth Index, holding 391 stocks and providing exposure to a broad slice of the U.S. growth market. Technology leads at 55% of total assets, with consumer cyclical and communication services making up substantial portions.

Its top positions are Nvidia, Apple, and Microsoft, and the fund’s 15-year track record signals stability and maturity. VONG’s broader roster means less concentration risk in single names.

MGK, by contrast, is even more tech-heavy, with the sector making up 58% of total assets. It also holds just 66 names, making it more concentrated in the largest companies. Its top three holdings match VONG’s, but with higher individual weights.

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What this means for investors

VONG and MGK both concentrate heavily on tech stocks with potential for above-average returns, making them smart investments for those seeking tech exposure within a growth ETF.

However, the two funds differ primarily in diversification. VONG holds nearly 400 stocks, compared to just 66 for MGK. That alone is a substantial difference between the two, but MGK's heavier tilt toward tech makes it even less diversified than VONG.

Less diversification isn't always a bad thing, however. A more targeted ETF can result in higher earnings, as it's less likely that lower-performing stocks will drag down the fund's overall performance.

While MGK has outperformed VONG over the past 12 months and five years, the difference is marginal. When considering pure performance, then, it appears that perhaps MGK's higher risk level hasn't necessarily paid off.

Going forward, MGK has the potential to outperform VONG if the tech sector continues thriving. But if a tech downturn is around the corner, VONG's increased diversification could help mitigate some risk and result in slightly milder price fluctuations.

Glossary

ETF: Exchange-traded fund; a pooled investment fund traded on stock exchanges like a stock.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Dividend yield: Annual dividends paid by a fund or stock divided by its current price, expressed as a percentage.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
Beta: A measure of an investment’s volatility compared to the overall market, typically the S&P 500.
AUM: Assets under management; the total market value of assets a fund manages on behalf of investors.
Max drawdown: The largest percentage drop from a fund’s peak value to its lowest point over a specific period.
Concentration risk: The risk of losses due to heavy investment in a small number of holdings or sectors.
Diversification: Spreading investments across various assets to reduce risk from any single holding.
Sector tilt: When a fund has a higher allocation to a particular industry or sector than the broader market.
Russell 1000 Growth Index: A stock index tracking the performance of large-cap U.S. growth companies.