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Better Buy: Vanguard Growth ETF or iShares Russell 1000 Growth ETF?

By Dave Kovaleski – Sep 27, 2021 at 7:32AM

Key Points

  • The Vanguard Growth ETF, the second-largest large-cap growth ETF, has an average return of 19% over the past 10 years.
  • The iShares Russell 1000 Growth ETF has similar long-term performance and is more diversified.
  • The Vanguard Growth ETF has a significantly lower expense ratio.

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These two large-cap growth ETFs are among the most popular in their class. But there's one key difference between them.

For investors searching for stable, long-term returns, large-cap growth funds are a great place to look. Large-cap growth funds invest in the biggest companies in the world that exhibit high revenue and earnings growth rates with higher valuations. They may be prone to more short-term volatility, but over time, large-cap growth stocks have outperformed large-cap value stocks.

A great way to invest in the best large-cap growth companies is through an exchange-traded fund, or ETF. Two of the largest and most popular large-cap growth ETFs are the Vanguard Growth ETF (VUG -0.36%) and the iShares Russell 1000 Growth ETF (IWF -0.25%). Which is the better buy?

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Vanguard Growth ETF

The Vanguard Growth ETF is the second-largest large-cap growth ETF, according to ETF Database, with about $86 billion in total assets. It tracks the performance of the CRSP Large-Cap Growth Index and includes about 285 stocks. The stocks in the index are determined to be large-cap growth based on market cap as well as various screens, including future long-term growth in earnings per share (EPS), future short-term growth in EPS, three-year historical growth in EPS, three-year historical growth in sales per share, current investment-to-assets ratio, and return on assets. The average annual earnings growth rate for stocks in this index is 28% over the past five years.

Almost 50% of the portfolio is in technology stocks, while 22% is in consumer discretionary stocks and 12% is in industrials. The three largest holdings are Apple, Microsoft, and Alphabet. The 10 largest holdings make up 47% of the portfolio.

The ETF has returned 19% over the past 10 years on an annualized basis and 23.7% annually over the past five years through Aug. 31. It's up 28.9% over the past year, through Aug. 31, and year to date as of Sept. 24, it has returned about 19%. Also, it has the lowest expense ratio among the 10 largest large-cap growth ETFs at 0.04%.

iShares Russell 1000 Growth ETF

The iShares Russell 1000 Growth ETF is the third-largest large-cap growth ETF, with about $74 billion in net assets. It differs from the Vanguard Growth ETF in that it tracks a significantly broader swath of the market, as it mirrors the performance of growth stocks within the Russell 1000.

As such, while it is predominantly made up of large caps, it also has some mid-cap names. Overall, the portfolio includes about 501 holdings -- roughly 75% more than the Vanguard Growth ETF. The Russell 1000 Growth Index includes companies within the Russell 1000 with higher price-to-book ratios and higher forecasted growth values. The average price-to-book ratio is around 14.2% in the Russell 1000 Growth Index, compared to 4.7% in the Russell 1000. The average earnings growth rate over the past five years is 26%.

About 45% of the portfolio is in information technology stocks, while 18% is in consumer discretionary and 13% is in communication stocks. It has the same top three holdings as the Vanguard Growth ETF, and its 10 largest holdings make up 45.5% of the portfolio.

Over the last 10 years, it has returned 19.2% on an annualized basis, and over the past five years it has posted a 24.1% annualized return, as of Aug. 31. Over the past one-year period through Aug. 31 it is up 28.3%,  and year to date as of Sept. 24 it has returned roughly 18%. It has an expense ratio of 0.19%.

Which is the better buy?

These are two of the largest large-cap growth funds and, while they track different indexes, they are very similar in terms of performance. The returns are almost equal over both the long term and the short term. While the iShares fund is more diversified and is slightly less volatile as measured by its beta and standard deviation numbers, the difference is minor.

The one major difference is the expense ratio, which is significantly lower on the Vanguard Growth ETF at 0.04% compared to 0.19% for the iShares fund. So, if I had to pick one, I'd probably go with the Vanguard Growth ETF, based on that key difference. But both have been around a long time, have excellent track records, and are two of the three largest in their class. You can't really go wrong with either.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, Microsoft, and Vanguard Growth ETF. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Vanguard Growth ETF Stock Quote
Vanguard Growth ETF
VUG
$228.93 (-0.36%) $0.83
iShares Russell 1000 Growth Index Stock Quote
iShares Russell 1000 Growth Index
IWF
$228.55 (-0.25%) $0.57

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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