Investors love growth stocks and ETFs associated with them for the right reasons. These funds are excellent performers – outperforming most value stocks in the last decade and beyond. These funds can efficiently extend your portfolios to the massive potential gains the US growth stocks offer.
VUG and QQQ are two of the most sought-after growth ETFs out there. Both would be excellent investment options for any investor looking for exposure to growth stocks. It only gets pretty tricky when it is time to choose one between both options.
But not to worry – that is why we are here. Here is a comprehensive review and comparison of VUG and QQQ to help you make the right investment decision regarding growth ETFs.
Key Takeaways
Before diving deeper, here are the key takeaways;
- The Vanguard Growth ETF (VUG) and Invesco QQQ Trust (QQQ) are top Growth ETFs.
- They are both US Stocks Large-Cap Growth Funds offering investors exposure to domestic growth stocks and the massive potential gains that come with them.
- VUG tracks the CRSP U.S. Large-Cap Growth Index, while QQQ tracks the NASDAQ-100 index.
- Both funds have similar levels of assets under management; $145.59bn in VUG and $166.33bn in QQQ.
- Both invest in similar investments behind the scenes – over 40% of the allocation goes into technology in both funds.
VUG vs. QQQ – Introducing Two High Growth ETFs
Vanguard Growth ETF
The Vanguard Growth ETF (VUG) is a growth ETF issued by Vanguard offering excellent exposure to U.S. large-cap growth firms. Launched in 2004, the Vanguard growth index fund follows a passively managed, full-replication approach, which means it tries to replicate the performance of many of the largest growth stocks in the United States. We can call it the growth half of the S&P 500 with competing growth strategies.
Invesco Growth ETF
Now let’s talk about QQQ. The Invesco QQQ Trust (QQQ) ETF is an Invesco fund offering exposure to the 100 largest non-financial companies by market cap trading on the NASDAQ exchange. QQQ used to be a unit investment trust when it was first launched in 1991. However, it has enjoyed more popularity in the last few years, outperforming the market in most cases thanks to its competing growth stock strategies. It is the second most traded ETF in the United States according to the average daily volume traded.
VUG vs. QQQ – Differences in Composition
Let’s get to the differences between these attractive funds, and we will be starting with the composition.
Underlying Indexes
The underlying index in VUG is the CRSP US Large Growth Index. This fund is designed to track only large-cap US companies that fall under the Growth category. In other words, it measures the investment return of large-capitalization growth stocks in the United States.
QQQ’s underlying index is the NASDAQ-100, which comprises the 100 largest non-financial companies listed on the Nasdaq based on market cap. It offers investors exposure to the US and international non-financial companies, provided they are listed on the Nasdaq.
Holding and Growth Stocks Composition
VUG comprises 266 stocks spread across 11 sectors of the market. The most significant chunk of the portfolio allocation goes into Technology (49.30%), followed closely by Consumer Discretionary stocks (22.80%). Other top sectors include Industrials (10.80%) and Healthcare (7.60%). Apple Inc and Microsoft Corporation are the biggest holdings in the VUG portfolio, taking up 12.80% and 11.30%, respectively. The median market cap of these holdings is $311.5bn. In addition, the total net asset in the VUG portfolio is $145.6bn, while the share class total net assets stand at $72.7bn.
QQQ, on the other hand, has 102 stocks in its portfolio spread across six sectors, with $150.16bn assets under management. Similar to VUG, the highest sector allocation goes to Information Technology (50.23%), followed by Consumer Discretionary stocks (17.01%) and Communication Services (16.99%). Apple Inc has the biggest holding in the QQQ portfolio, with 12.39% of the entire allocation. Microsoft Corporation comes close to the second place, with 10.72%. Amazon is the third on the list with 6.16%.
You can find the summary of the top 5 sectors of both funds in the tables below:
| S/N | VUG | QQQ |
| 1. | Technology – 49.30% | Information Technology – 50.23% |
| 2. | Consumer Discretionary – 22.80% | Consumer Discretionary – 17.01% |
| 3. | Industrials – 10.80% | Communication Services – 16.99% |
| 4. | Health Care – 7.60% | Health Care – 5.87% |
| 5. | Real Estate – 2.70% | Consumer Staples 5.50% |
Here is a summary of the top 10 holdings of both funds:
| S/N | VUG | QQQ |
| 1. | Apple Inc – 11.80% | Apple Inc – 12.30% |
| 2. | Microsoft Corp – 11.30% | Microsoft Corp – 10.27% |
| 3. | Amazon.com Inc – 5.77% | Amazon.com Inc – 6.16% |
| 4. | Alphabet Inc Class A (Google) – 3.79% | Alphabet Inc Class C (Google) – 6.16% |
| 5. | Tesla Inc – 3.48% | Tesla Inc – 3.86% |
| 6. | Alphabet Inc Class C (Google) – 3.39% | Alphabet Inc Class C (Google) – 3.72% |
| 7. | Facebook Inc Class A – 2.48% | Meta Plaforms Inc Class A – 3.25% |
| 8. | NVIDIA Corp – 2.46% | NVIDIA Corp – 3.21% |
| 9. | Visa Inc. Class A – 1.89% | Visa Inc. Class A – 2.10% |
| 10. | Home Depot Inc – 1.75% | Broadcom Inc – 1.97% |
From the above, 49.2% of VUG’s holdings are in the top 10, while 51.4% of QQQ’s holdings are in the top 10.
Exposure
Regarding exposure, both funds are mainly exposed to large-cap growth stocks but with slight differences. In VUG, 87.42% of the portfolio is exposed to large-cap growth stocks, while 11.02% is exposed to mid-cap growth stocks. QQQ has 92.23% of its portfolio exposed to large-cap growth stocks, with just 3.23% dedicated to the emerging markets.
VUG vs. QQQ – Historical Track Records
Portfolio Growth
If you invested $10,000 in VUG and QQQ in January 2010, these portfolios would have grown by 364.67% and 563.75%, respectively. That means your VUG portfolio would be worth $46,467, while the QQQ would be worth 66,375. The QQQ is obviously the better performer here.
Annual Returns
The average annual return of VUQ in the last ten years is 15.24. It is 14.83% and 17.57% for the last five and three years, respectively. QQQ performed slightly better. In the previous ten years, the annual average return is 19.42%, which has returned 23.16% and 27.04% in the last five and three years, respectively.
Dividend Yield
The current dividend yield of VUG is 0.60%, with a turnover rate of 7.60% as of the end of the last fiscal year. QQQ is not far away, with a dividend yield of 0.64%. However, it is essential to consider other factors besides dividend yield when deciding between both funds.
VUG vs. QQQ – Fees and Tax Efficiency
Minimum Investments
The minimum investment refers to the least you can invest into an index fund. It also measures how cheap, or easily accessible an ETF can be. The minimum investment anyone can put into both QQQ vs. VUG is the cost of one share, which is $217.31 and $274.69, respectively.
Both funds do not have any strict minimum investment requirements considering their shares are traded like any other stock in the market.
Expense Ratio
The Vanguard growth index fund is the slightly cheaper option in terms of expense ratio. With a 0.04% expense ratio, you can save considerably more on investment and management costs than QQQ, with an expense ratio of 0.20%. However, QQQ makes up for this 5x difference per dollar investment with its better performance over the years.
VUG vs. QQQ – ESG Ratings and Impact
The MSCI ESG Research LLC’s score offers an insight into how well a fund can cope with long-term risks and opportunities resulting from environmental, socio-cultural, and government issues.
Both VUG and QQQ have fairly impressive ESG ratings. 30% of VUG’s holdings are rated AAA (leaders), while 33% of QQQ’s holdings are similarly placed.
VUG vs. QQQ – Volatility and Risk
According to Portfolios Lab, the volatility of VUG currently stands at 41.39%. This is very close to or almost equal to the volatility of QQQ, which is 41.55%. Both funds invest in stocks, which are asset classes known for their relatively higher volatility, and, by extension, risk. That said, it is difficult to separate the two funds based on their level of volatility.
Final Verdict – Which Growth ETF is Better For Your Portfolio?
You will agree that it is a close call between the Vanguard Growth ETF (VUG) and the Invesco QQQ Trust (QQQ) ETF. They are both heavily invested in large-cap growth stocks, with major holdings in technology and the big tech companies. Both funds are also heavily weighted at the top, with almost half of the portfolio value going into their respective top 10 holdings.
Perhaps, the only metric we can use to separate QQQ vs. VUG is their performance over the years. QQQ has been the better performer in the last decade and slightly beyond. Investors who are keen on more returns for their portfolios can make a decision based on this. It is important to note that the better performing QQQ costs because it has a higher expense ratio. But we can also argue that the higher potential returns cancel out the 5x higher cost per dollar investment QQQ commands.
If you are a big fan of large-cap growth stocks, QQQ is the fund for you – it offers 92.23% exposure to the large-cap growth domestic market. Conversely, if you prefer a minimal exposure to the mid-cap growth stocks, VUG has dedicated 11.02% of its entire portfolio to these stocks. You can rest assured of your portfolio doing good numbers irrespective of which of the two funds you choose.
Good luck!