We are comparing Vanguard Investment’s VOO and VOOG Funds. Both are different in their yields, volatility, and returns, as well as key performance metrics over the long term. This difference is not surprising considering the different market segments they cover.
The VOO links the performance of the S&P 500 index, which assesses returns of big cap stocks. VOOG links to S&P’s 500 Growth Index Fund, tracks the returns of US large-cap growing shares.
Key Takeaways
- VOOG consists of Growth stocks from the S&P 500. VOOG has done well in the last decade, but value stocks outperform the growth stocks.
- The VOO offers blanket exposure to the S&P 500 index without focusing exclusively on growth stocks like the VOOG.
- The VOOGs’ focus on growth and concentration on Tech stocks makes it vulnerable to concentration risk
- Significantly higher returns compensate for this volatility and risk for funds placed in the VOOG than the VOO.
VOO vs. VOOG: Summary
The VOO and the VOOG are funds run by Vanguard Investments. As expected, both are somewhat identical in terms of management fees. However, they differ in investment returns and key performance metrics over the long term, which is expected due to the different market segments they cover.
VOO is the Vanguard S&P 500 ETF (VOO). VOO links the performance of the entire Standard & Poor’s 500 index, which assesses returns of big cap stocks. VOOG is the Vanguard Standard & Poor’s 500 Growth Index Fund. It links returns of US big-cap growing shares.
As expected, the VOOG does better than the VOO with a compound annual growth rate (CAGR) of 18.21% compared to 15.46% as of November 30, 2021.
VOO’s expense ratio is 0.03%, while the VOOG expense ratio is 0.10%. Another major difference between VOO and VOOG is that VOO holds 514 holdings compared to VOOG’s 245 holdings.
VOO vs VOOG: Composition
The funds differ because of their inherent composition and the different indexes they track. The VOO links the performance of the Standard & Poor’s 500 index, which assesses returns of big-cap companies. The VOOG tracks the Vanguard S&P 500 Growth Index Fund.
VOO’s composition runs a combination of large-cap value and growth shares, with the breakup being 46% value stocks and 56% growth stock. VOOG’s composition is 99% growth stocks.
VOO holds about 500 stocks at any time, on average. The major chunk of 24% is in tech holdings, about 14% in financial services, and 13% in healthcare. VOOGs holdings of roughly 250 stocks are spread with 39% in tech, 17% in consumer cyclical, and 15% in communication services.
However, the top 5 holdings for both funds are identical, with Apple, Microsoft, Amazon, Facebook, and Google making the top five stocks. The only difference is the weights of the holdings, with VOO having 28% of its total holdings in the top ten, while VOOG holds 50% of its total holdings in the top ten.
Most funds earn the bulk of their income from their top holdings. This similar holding structure at the top makes the returns of both ETFs roughly similar over the short run.
VOO vs. VOOG: Historical Performance
VOO was launched in 2010 to track the S&P 500 Index and has been one of the more popular ETFs in its segment. It is commonly perceived as a true showcase ETF of both the US stock market and investor attitudes about fiscal measures. It has about 500 stocks in its holdings at any time.
VOOG has significantly outperformed the VOO in the short term. Its total trailing returns for the three months are 4 % compared to roughly 1% for the VOO. One-year trailing returns are 34% compared to VOOs 28%.
If we annualize these returns for 3 years, the VOO yielded 20% while the VOOG yielded 27%. This gap reduced slightly for 5 years, with VOOG returning 24% compared to VOO’s 18%.
Over the longer-term periods, this difference in returns reduced further to VOOs 10 years, falling to 16%, while VOOG’s fell even more drastically to just 19%. This can be traced back to the start of tech growth, which has significantly pushed VOOG’s performance forward.
A $10,000 investment in VOOG would have resulted in almost $51,000 with an inflation-adjusted CAGR of 15.69%. This is significantly higher than VOO’s return of $39,000 with an inflation-adjusted CAGR of 13%. VOOG would have yielded $12,000 more than the VOO over the same time frame, a significant difference for an individual investor.
VOO vs. VOOG: Fees & Tax Efficiency
Fees for VOO are Vanguard’s standard 0.03 %. VOOG is slightly more expensive at 0.10%. In monetary terms, it means that for VOOG, you will pay about $10 per annum for a $10,000 investment. For VOO, this would be $3 for a $10,000 investment
This difference is not significant for $10,000 and may not be significant even for a larger investment. There are no minimum investment requirements for both funds. Assets under management for VOO are approximately $ 830 Bn, while VOOG has around$ 7.5 Bn.
The exact tax impact of both funds would depend on your income bracket and investment account type regarding taxes. VOO and VOOG have a good Qualified Dividend Income (QDI). Both are somewhat restricted by the S & P 500 vetting process.
VOO vs VOOG: ESG Ratings & Impact
ESG ratings are progressively growing in significance for wealth and asset managers. They play an important role in creating improved transparency in investment decisions.
A significant portion of investors is becoming more concerned about knowing their investment’s ESG records. Knowing their portfolio’s environmental, social, and governance records is a long-sighted move to evaluate long-term issues and behavior.
VOO:
- VOO ranks 47th on a percentile basis in its Equity US peer group. It ranks in the 50th percentile globally in 34,000 funds.
- 27% of its holdings got an MSCI ESG Rating of AAA or AA, the ESG top rating. 4% of VOO’s holdings scored an MSCI ESG Rating of B or CCC, which is the lagging range.
- The fund’s assets rank as mildly carbon-intensive evaluated on the weighted average of carbon releases per USD million sales.
- 6.6% of the VOO earnings from the it’s holdings are green (from renewable energy), and 0 % of revenue is from sources like thermal coal (considered fossils fuels)
- The fund’s weighted average rate of autonomous BOD is 82.1%, and the weighted average percentage of female board members is 32.8%
VOOG:
- VOOG falls in the 13th percentile in its Equity US group. It ranked in the 36th percentile in the world amongst 34,000 funds.
- 32% of its holdings scored an MSCI ESG Rating of AAA or AA, qualifying as ESG top rating. 5% of VOO fund holdings got an MSCI ESG Rating of B or CCC, which falls in the laggards’ range for ESG.
- The holdings rank as low on the carbon-intensive range scored on the weighted average of carbon emissions for USD million sales.
- Almost 10% of the fund’s earnings from the fund’s holdings are green (from sustainable energy), and 0 % of earnings are from fossils fuels sources like thermal coal.
- The fund’s weighted average percentage of autonomous BOD is 82.5%, and the weighted average percentage of female board members is 32.8%
Final Verdict
Both VOOG and VOO have some overlap, approximately 25-30% at any point. If you don’t remember, this 30 % is the portfolio holdings of VOO in large-cap growth stocks. VOOG has higher returns, yields, and expenses.
The only difference is in their prices. For today (December 20, 2021), VOO is trading for almost $ 420, while VTI is trading for $ 290.
Price aside, the main factor behind picking VOOG or VOO should base on what your portfolio is at present. If you are already exposed to large-cap growth stocks, then VOOG would create excessive sector coverage in your portfolio, making VOO a better option.
VOO would make more sense for investors looking for exposure in the S&P 500 stocks over the long term in terms of exposure and stability. Bear in mind that VOOG has historically better returns, but it is more vulnerable to market volatility and sector bias.
For initial investors just starting their savings investment journey and planning to invest passively, VOO is a better choice simply because of the overall stable exposure it gives to the total stock, all 500 plus of them. For investors looking for just growth stocks, there are other cheaper and better alternatives to the VOOG. Vanguard has other growth-linked index funds that can be a better choice for growth-based exposure than the VOOG.
The key point I’m trying to make here is that the VOOG is a better option for short to medium term in terms of numbers. But as an ETF investor, VOO makes more investment sense if you are a passive and low volatility investor.
Like most people often say when discussing investment options, Investing doesn’t have a right or wrong combination or selection. You just have to be clear about why you are picking the option and make sure that the rationale makes sense.
In this regard, investing in VOOG can make sense according to recency bias as it yields better returns than the VOO, but this can change if tech stocks dip.