The Nasdaq Composite (^IXIC -0.49%) closed Wednesday at 19,146.81 -- a staggering 29.5% rally from its 52-week intraday low of 14,784.03 on April 7.
Trade tensions are easing. Reciprocal tariffs are being paused or cut. The economy is showing resiliency. Big banks such as Goldman Sachs and JPMorgan Chase just reduced their recession odds forecasts. In sum, a renewed wave of investor optimism is rippling through the market.
Of course, there's always the "stroke of the pen risk" that policies change and tensions flare once more. However, with a prolonged trade war now likely avoided, investors can shift their focus back to building their portfolios around quality companies.
Exchange-traded funds (ETFs) can be simple and effective ways to achieve diversification and invest in several companies at once. Investment management firm Vanguard offers low-cost ETFs with expense ratios of 0.1% or lower that target multiple themes, such as growth stocks.
Here's why the Vanguard Growth ETF (VUG -0.65%), Vanguard Information Technology ETF (VGT +0.11%), and Vanguard Consumer Discretionary ETF (VCR -1.26%) are soaring and could be worth buying now.
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Vanguard Growth ETF
The Vanguard Growth ETF has over 54% of its allocation in Apple (AAPL -2.67%), Microsoft (MSFT -1.80%), Nvidia (NVDA +1.50%), Amazon (AMZN -1.12%), Alphabet (GOOG -1.27%) (GOOGL -1.33%), Meta Platforms (META +0.22%), Broadcom, and Tesla (TSLA -6.21%). Those stocks were getting crushed when trade tensions were mounting. However, they have also been the companies leading the broader rebound in the major indexes.
The Vanguard Growth ETF is similar to the Nasdaq Composite in both holdings and long-term performance. Over the last 10 years, the Nasdaq Composite has posted a total return (gains plus dividends) of 279.1% compared to 277.4% for the Vanguard Growth ETF and 177.8% for the S&P 500 (^GSPC -0.49%).
However, the Vanguard Growth ETF isn't bogged down by index limitations. Some major growth stocks are on the New York Stock Exchange, not the Nasdaq Composite, such as drugmaker Eli Lilly and tech giant Oracle. ETFs that focus only on Nasdaq stocks, like the Invesco QQQ Trust (QQQ -0.04%), don't invest in these names. And the Invesco QQQ also sports a 0.2% expense ratio -- which is five times higher than the 0.04% expense ratio of the Vanguard Growth ETF.
Vanguard Information Technology ETF
This ETF mirrors the tech sector's performance. It holds 310 components, but a handful of stocks drive its gains. Apple, Nvidia, and Microsoft make up a staggering 46.3% of the fund due to their sheer size. After all, these are the three most valuable companies in the world. And all three stocks have been rallying hard on news of easing trade tensions.
Despite being much higher today than it was a few weeks ago, the ETF could still be worth buying now if you believe in the competitive advantages of top tech companies.
Apple has an integrated ecosystem that blends hardware and software across devices -- with a growing services segment that keeps consumers engaged. Apple generates so much extra cash and is so confident in the value of its stock that it authorized a $100 billion stock repurchase program earlier this month.
Microsoft is arguably one of the best all-around growth stocks to buy now due to its diversified business model, steady high-margin growth across cloud computing, artificial intelligence (AI), hardware, and software, an impeccable balance sheet, and a massive capital return program.
Nvidia stands to benefit from increased AI spending from hyperscalers like Microsoft, Apple, Amazon, and Meta Platforms. Despite tariff turmoil, hyperscaler spending remains at record highs.
Instead of pulling back on AI spending amid economic uncertainty, Meta Platforms announced on its latest earnings call that it would increase its capital expenditures. Cloud infrastructure giants like Amazon Web Services, Microsoft Cloud, and Google Cloud are all ramping up investments to meet customer demands.
In sum, investing in a technology sector fund is a great way to concentrate capital on top themes like AI and cloud computing.
Vanguard Consumer Discretionary ETF
The consumer discretionary sector is a coiled spring for economic growth. 35.3% of the fund is concentrated in Amazon and Tesla. But beyond that, the fund includes a variety of cyclical sectors that tend to grow in lockstep with the broader economy, like home improvement giants Home Depot and Lowe's Companies, and travel giant Booking Holdings.
Consumer discretionary tends to be one of the hardest hit sectors during a sell-off, but it can also rally quickly when sentiment shifts positively.
The sector is sensitive to economic readings like unemployment and GDP. The sector can boom when consumer spending is high, the economy is growing, and unemployment is low. But these same factors can be a double-edged sword when the economy is contracting.
Investors looking for a fund built around Amazon and Tesla may want to take a closer look at the Vanguard Consumer Discretionary ETF.
Investing in growth stocks with a long-term mindset
Although the discussed ETFs have been surging in lockstep with the rebound in the Nasdaq Composite, investors should make sure they are buying stocks and ETFs for the right reasons and not just riding the market rally higher for a quick gain.
Because all three ETFs are so concentrated in a handful of names, they can be highly volatile to the upside and the downside. So, it's important to want to own the top holdings in each ETF before putting your hard-earned savings to work.
ETFs can be excellent plug-and-play tools for aligning investments with financial objectives by getting exposure to top stocks. However, investors looking for less volatility may want to steer clear of the discussed ETFs and look for more diversified funds that aren't so top-heavy.
