Investment management firm Vanguard offers a variety of exchange-traded funds (ETFs) that allow investors to target a specific theme or sector at a low cost.
With just 0.04% expense ratios, meaning $0.40 for every $1,000 invested, the Vanguard Growth ETF (VUG 1.34%) and the Vanguard Value ETF (VTV 1.09%) are two massive, ultra-low-cost funds that target large-cap stocks offered on U.S. exchanges.
Here are some key insights into each fund to help you decide which is the best choice for you in 2025.
Image source: Getty Images.
Distinct differences
The simplest way to understand the differences between the Vanguard Growth ETF and the Vanguard Value ETF is to know what each fund comprises and how that composition stacks up against the Vanguard S&P 500 ETF (VOO 1.24%), which mirrors the performance of the S&P 500 (^GSPC 1.33%).
|
Sector |
Vanguard S&P 500 ETF |
Vanguard Growth ETF |
Vanguard Value ETF |
|---|---|---|---|
|
Information technology and communications |
41.9% |
59.1% |
12.3% |
|
Financials |
13.6% |
2.7% |
21.7% |
|
Consumer discretionary |
11.3% |
19.8% |
9.2% |
|
Healthcare |
10.1% |
5.7% |
15.5% |
|
Industrials |
8.1% |
8.4% |
15.6% |
|
Consumer staples |
5.5% |
0.4% |
8.6% |
|
Energy |
3.2% |
0.8% |
6.6% |
|
Utilities |
2.3% |
0.2% |
5.6% |
|
Real estate |
2.1% |
1.3% |
3.1% |
|
Materials |
1.9% |
0.7% |
1.8% |
Data source: Vanguard.
As you can see in the table, the Vanguard Growth ETF is heavily concentrated in technology, communications, and consumer discretionary. In fact, 60% of the fund is in Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, Tesla, Broadcom, and Netflix. Apple, Microsoft, Nvidia, and Broadcom are in the tech sector; Alphabet, Meta Platforms, and Netflix are in communications; and Amazon and Tesla are in consumer discretionary.
The Vanguard Growth ETF holds top payment processors Visa and Mastercard, as well as S&P Global and Moody's, but it doesn't include the big banks like JPMorgan Chase, the investment banks Goldman Sachs and Morgan Stanley, or Berkshire Hathaway. These companies are core components of the financial sector, which is the sector with the highest weight in the Vanguard Value ETF.
The Value ETF is significantly more balanced than the Growth ETF or even the S&P 500. The largest holding, Berkshire Hathaway, makes up just 3.9% of the fund, followed by JPMorgan Chase at 3.1%, Broadcom at 2.5%, ExxonMobil at 2.2%, and UnitedHealth Group at 2.2%. So, it is not nearly as concentrated as the S&P 500 or the Growth ETF.
By excluding the big tech-focused companies, the Value ETF has a lower valuation and a higher yield than the Vanguard S&P 500 ETF. It has also underperformed the S&P 500 and the Growth ETF in recent years (even when factoring in dividends), given the outsize gains of stocks like Nvidia, Broadcom, Meta, and others.
VUG Total Return Level data by YCharts.
However, the fund has still produced solid gains, largely thanks to its concentration in financials. Financials were the second-best-performing sector in 2024 -- behind only communications.
Using ETFs to your advantage
The Vanguard Growth ETF and Vanguard Value ETF are two simple yet effective ways to invest in small pieces of hundreds of large-cap stocks. But the Vanguard Growth ETF has become less diversified in recent years, whereas the Vanguard Value ETF is still very diversified, even with its focus on financials, industrials, and healthcare.
One thing to be careful about when approaching either ETF -- or any ETF, for that matter -- is accidentally increasing your exposure to companies you already own and don't necessarily want to buy more of.
For example, if one-fifth of your portfolio is already in big banks and Berkshire Hathaway, the Vanguard Value ETF isn't going to provide the diversification you may be looking for. Similarly, if you already own a lot of big tech stocks and are comfortable with your positions, you probably don't want to go with the Vanguard Growth ETF.
I think the best reason to buy either fund is as an alternative to an S&P 500 index fund. Put another way, you want to deploy money into the market through a passive investment vehicle but in a way that better suits your investment objectives and risk tolerance and complements your current holdings.
If you've ridden the growth stock rally to new heights but are still putting new savings to work in the market, you may be tempted to sell out of winning growth stocks. But a better approach is to only sell a stock for a specific reason, such as the investment thesis changing or the risk and potential reward no longer being worth a premium valuation -- not just because a stock has gone up. By putting new money into an ETF that holds companies you mostly don't own, you diversify your portfolio without needing to trade in and out of positions.
By the same token, investors who own mostly value and dividend stocks and want more exposure to growth stocks may want to take a closer look at the Vanguard Growth ETF. Buying stocks at all-time highs is never easy. After all, no one wants to buy a stock after a major run-up just to watch it fall back down. The Vanguard Growth ETF is heavily concentrated, but it can still help smooth out the risks of one stock nosediving.
Staying even-keeled no matter what the market brings
Perhaps most importantly, holding an ETF through periods of volatility can be less stressful than an individual stock. We're all human, so it's easy to second-guess an investment thesis when a stock goes down, especially relative to its peer group. So, if there's a general sell-off in big tech and you own, let's say, Microsoft and Broadcom, you may overly worry about why those companies are going down. But if you own the Vanguard Growth ETF, you may find it easier to keep calm and let the cycle play out.
In sum, investing in the Vanguard Growth ETF or the Vanguard Value ETF are great choices to kick off the new year. Just make sure to review the holdings list of both ETFs so you're informed before diving in headfirst.
