Metaplatforms reached a new intraday high on October 4. Investments in artificial intelligence (AI) are paying off for its core advertising business, and its augmented and virtual reality projects could potentially contribute to long-term earnings growth.
Meta is now the most popular stock in the ‘Magnificent Seven’ – a group of the largest technology-focused companies. But not so long ago, Nvidia took the group higher. And Applewhich was a significant market laggard earlier this year, has made a huge comeback and is up more than 33% in the past six months.
You might be surprised to learn that all of Magnificent Seven’s stocks, apart from Meta, have underperformed S&P500 during the past three months. The slowdown may be due to valuation concerns that earnings will have to catch up with rising stock prices. Another factor is the broadening of the market recovery, as stable proponents want Coca-cola, Home Depotand other blue chip components of the Dow Jones Industrial Average have been rising higher in recent months, contributing most of the index gains.
It’s useful to be aware of the broader market’s swings and key economic events so you know why a stock is moving in a certain direction in the short term. But often, many of these moves are just noise and can distract from what investing is all about, which is putting your hard-earned savings to work in companies that can increase in value over time and perhaps even return capital to investors through buybacks and dividends.
This is why the Vanguard Mega Cap Growth ETF (NYSEMKT: MGK) is packed with compounding potential and worth buying now.
Leading from the top
Investing in an ETF can be liberating because it can soften individual stock movements by focusing more on a specific theme, sector or investment objective. The fund can do well even if its market leadership changes. It’s less about Apple vs Microsoft or Meta Platforms versus Google’s parent company Alphabet and more about overall industry-wide growth.
Of course, lower risk can mean lower reward, because big gains on one stock can only move an ETF so much. But overall, the pros of ETFs can outweigh the cons, especially for investors looking for a hands-off tool. The Vanguard Mega Cap Growth ETF is a bold bet on the top growth stocks, especially tech-focused companies.
|
To cling |
Weighting in the Vanguard Mega Cap Growth ETF |
|---|---|
|
Apple |
13.5% |
|
Microsoft |
12.7% |
|
Nvidia |
11.3% |
|
Alphabet |
6.7% |
|
Metaplatforms |
5% |
|
Amazon |
4.5% |
|
Eli Lilly |
2.7% |
|
Tesla |
2.1% |
|
Visa |
1.9% |
|
MasterCard |
1.9% |
Data source: Vanguard Group.
No less than 62.7% of the fund is invested in just 10 positions, which is a higher concentration than in an index like the Nasdaq Composite or the S&P 500, or even a comparable ETF like the Vanguard Growth ETF. The Growth ETF has the exact same top 10 holdings as the Mega Cap Growth ETF, just less weighting in the top names and 188 total holdings compared to just 71 in the mega cap growth ETF.
At its core, the Vanguard Mega Cap Growth ETF is a bet on the continued outperformance of the most successful and valuable companies relative to the broader indices. The Vanguard Mega Cap growth ETF has slightly outperformed the Nasdaq Composite and S&P 500 over the past five and 10 years, thanks to the dominance of the largest market cap stocks.
There is reason to believe that these companies have what it takes to continue to lead the broader market higher in the coming years.
Megacap momentum
Mega-cap growth companies should continue to do well as long as they meet investor expectations. Solid earnings growth can justify a higher share price and even valuation increases. AI, cloud infrastructure, consumer spending, social media ad revenue, and enterprise software are all key trends impacting mega-cap tech stocks and being key drivers of earnings growth.
Recently, Alphabet and Meta Platforms started paying small dividends to pass profits directly to shareholders – which is also a capital return strategy deployed by Microsoft and Apple. All four companies are buying back a ton of stock to reduce the impact of stock-based compensation and avoid dilution. As these companies mature, their dividends may become an increasingly important aspect of the investment thesis.
With an expense ratio of just 0.07% or $0.70 for every $1,000 invested, the Vanguard Mega Cap Growth ETF is an extremely low-cost way to invest in America’s most valuable growth-oriented companies. The top-heavy structure increases the impact of a single large holding company. For this reason, the fund can be volatile if there is a sell-off in multiple top positions. Yet it is one of those funds where investors know what they are getting. In other words, if the fund starts to underperform the market, it’s likely because there’s a sell-off in the big tech sector.
All told, the Vanguard Mega Cap Growth ETF is an excellent way for long-term investors to target multiple top stocks without paying significant fees that can reduce returns over time.
Don’t miss this second chance at a potentially lucrative opportunity
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-
Amazon: If you had invested $1,000 when we doubled in 2010, you would have $20,363!*
-
Apple: If you had invested $1,000 when we doubled in 2008, you would have $41,938!*
-
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $378,539!*
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*Stock Advisor returns October 7, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Home Depot, Mastercard, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds-Vanguard Growth ETF, and Visa. The Motley Fool recommends the following options: long January 2025 calls of $370 on Mastercard, long January 2026 calls of $395 on Microsoft, short January 2025 calls of $380 on Mastercard, and short January 2026 calls of $405 on Microsoft. The Motley Fool has a disclosure policy.
Beyond Nvidia and Meta Platforms: 1 Spectacular Vanguard ETF to Buy Now was originally published by The Motley Fool
