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2023 was a great year for the stock market. S&P500 (^GSPC 0.22%) 24% increase; Nasdaq Composite Soared 43%.
But one exchange-traded fund (ETF) outperformed both.it is Vanguard Growth ETF (VUG 0.16%), ended the year with a 46% increase. Growth stocks were big winners last year, driven by low valuations in early 2023 after the 2022 bear market and excitement about new artificial intelligence (AI) technologies after OpenAI’s ChatGPT announcement in late 2022. .
The Vanguard Growth Fund is a popular ETF, but it’s less well-known than ETFs that track the S&P 500 and other major indexes. Let’s take a closer look at ETFs and discuss what investors need to know about them and whether they have the potential to outperform the broader market again this year.
Image source: Getty Images.
What is the Vanguard Growth ETF?
Vanguard Growth ETF is a large-cap growth fund that tracks the CRSP US Large Cap Growth Index.
The fund holds 207 stocks. Invesco QQQ ETF and other funds Nasdaq-100, highly concentrated among the largest S&P 500 stocks. For example, more than 25% of the fund apple and microsoftand “The Magnificent Seven.” alphabet, Amazon, Nvidia, meta platformand teslawhich accounts for about half of the funds.
Unlike the Nasdaq 100 ETF, the Vanguard Growth Fund also includes stocks listed on the Nasdaq 100. new york stock exchange like Eli Lilly, visaand mcdonalds.
The Vanguard Growth Fund has a low expense ratio of 0.04%, almost no holding fees, and a modest dividend yield of 0.6%. The fund has total net assets of $200 billion, making it one of the largest ETFs available.
What to expect from Vanguard Growth Fund in 2024
VUG will begin trading in 2024 at a high valuation of 38 times earnings. This reflects the fact that many of the company’s major holdings, including Amazon, Nvidia, and Tesla, trade at high multiples, as do nearly all stocks. In “The Magnificent Seven” S&P500.
But for many of these stocks, premium valuations seem justified. For example, NVIDIA posted over 200% revenue growth in its latest quarterly report, and its earnings per share jumped more than 12 times his. This surge won’t last forever, but it’s one piece of evidence that 2024 returns for at least some of VUG’s large holdings are likely to be significantly higher than 2023 returns. It is. Amazon similarly reported a more than 200% increase in net profit in its third quarter report as the company cut costs, focused on efficiency and expanded warehouse capacity. And Meta’s third-quarter profit more than doubled.
Continue taiwan semiconductor manufacturingThere are also signs of recovery in the semiconductor sector, according to recent earnings reports, which could boost returns for member stocks such as: Advanced Micro Devices and texas instruments.
Image source: Getty Images.
Will VUG be able to outperform the S&P 500 in 2024?
It’s still early in the new year, but the Vanguard Growth Fund has already held a slight edge against both the S&P 500 and Nasdaq Composite this year. Through Jan. 19, VUG is up 2.7%, while the Nasdaq index is up 1.6% and the S&P 500 index is up 1.2%.
In addition to tailwinds from the AI boom and broad momentum in the stock market after last year’s rally, growth stocks should also benefit from lower interest rates — the Fed expects to cut rates three times this year, totaling 75 basis points. Cut.
Lower interest rates tend to favor growth stocks because the discount rate in discounted cash flow models decreases, making future earnings more valuable. Rising interest rates in 2022 were a big reason why growth and tech stocks tanked and underperformed the broader market.
The expected rate cuts alone may not be enough to propel this particular Vanguard fund into yet another win, but the strength of the Magnificent Seven, the ongoing AI boom, hopes for an economic recovery and Together, Vanguard’s growth will accelerate even further. ETFs are well positioned for 2024.
It is certain that it will outperform the S&P 500 again this year.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Jeremy Bowman holds positions at Amazon and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, Tesla, Texas Instruments, Vanguard Index Funds – Vanguard Growth ETF, and Visa. . The Motley Fool has a disclosure policy.
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