VUG Vs. QQQ: Comparison Of Two Popular Growth ETFs

Exchange-traded funds (ETFs) have become increasingly popular investment vehicles for retail and institutional investors alike. ETFs offer the diversity of mutual funds but trade intraday like stocks. Two ETFs that have attracted significant investor interest are the Vanguard Growth ETF (VUG) and Invesco QQQ Trust (QQQ).

But how exactly do these two growth-focused ETFs compare? This comprehensive, 2100-word guide provides an in-depth analysis of VUG and QQQ to help investors decide which (if either) is right for their portfolio.

A Brief Comparison Table

Attribute	VUG	QQQ
Launch Date	2004	1999
Assets under Management	$56 billion	$150 billion
# of Holdings	268	102
Expense Ratio	0.04%	0.20%
Top 10 Weight	23.3%	55.7%
Dividend Yield	0.71%	0.78%
Best For	Broad growth stock exposure, diversification	Concentrated Nasdaq-100 exposure, mega-cap tech

Overview Of VUG

The Vanguard Growth ETF (VUG) tracks the CRSP US Large Cap Growth Index, which represents the growth companies of the CRSP US Large Cap Index. VUG was launched in January 2004 and has $56 billion in assets under management as of October 2023.

VUG invests in stocks of large U.S. companies that are projected to grow faster than other large-cap stocks. It includes stocks that exhibit growth characteristics such as high earnings growth and high valuations. VUG holds 268 stocks as of October 2023, with top holdings including Apple, Microsoft, Amazon, Alphabet, and Tesla. The fund is heavily weighted towards information technology at 43.4% of the portfolio.

Overview Of QQQ

The Invesco QQQ ETF (QQQ) tracks the Nasdaq-100 Index, which comprises the 100 largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization. QQQ was launched in March 1999 and has $150 billion in assets under management as of October 2023.

QQQ invests in the largest non-financial stocks on the Nasdaq across major industry groups like technology, consumer services, health care, and more. Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Tesla, NVIDIA, and PepsiCo are the top 8 holdings, comprising nearly half of assets. QQQ is heavily exposed to information technology at 48.8% of the fund.

Comparing Index Methodology

One key difference between VUG and QQQ lies in their index construction methodologies.

• VUG tracks the CRSP US Large Cap Growth Index, which uses a rules-based approach to select high growth stocks from the CRSP US Large Cap Index based on fundamental factors like historical sales, earnings, and price data.
• QQQ tracks the Nasdaq-100 Index, which uses a modified market capitalization weighting methodology. This approach weights companies based on their market cap, but caps the exposure of the largest companies.

As a result, VUG employs a multifactor strategy targeting high growth companies specifically, while QQQ tracks large cap companies listed on the Nasdaq exchange using a market-cap approach with some concentration risk controls.

Comparing Fund Performance

Both VUG and QQQ have delivered strong returns over the long run, although there are some differences in their performance.

Here is a comparison of average annual returns as of September 30, 2022:

1 Year	3 Years	5 Years	10 Years
VUG: -29.28%	VUG: 10.53%	VUG: 12.85%	VUG: 14.53%
QQQ: -27.01%	QQQ: 11.48%	QQQ: 15.37%	QQQ: 16.21%

Over the past 1, 3, 5, and 10 year periods, QQQ has outperformed VUG by a small margin. This is likely attributable to the strong performance of mega-cap technology stocks like Apple, Microsoft and others that represent a substantial portion of QQQ.

However, over the long run, the performance differential has been minor. Both ETFs have handily beaten the S&P 500 over 10 years. And VUG has exhibited lower volatility than QQQ over time.

Comparing Expenses

When comparing ETFs, expense ratios are an important factor for investors to consider. Lower expense ratios mean more of your investment goes directly into the assets of the fund rather than covering administrative fees.

Here is how VUG and QQQ compare on expenses:

• VUG expense ratio: 0.04%
• QQQ expense ratio: 0.20%

VUG has a significantly lower expense ratio than QQQ. This is not surprising given that Vanguard is well-known for its low-cost index funds and ETFs. The difference in expense ratio means VUG has lower costs for investors.

Comparing Dividends

For income-oriented investors, the dividend profile of an ETF is an important consideration.

VUG has traditionally paid higher dividends than QQQ:

• VUG 30-day SEC yield: 0.71%
• QQQ 30-day SEC yield: 0.78%

However, dividend yields for both ETFs are quite low, as they focus on investing in growth companies that reinvest earnings into expansion rather than making dividend payouts. Neither ETF should be considered a source of substantial dividend income.

Comparing Sector Allocation

When comparing ETFs, it is instructive to examine how the funds allocate assets to different economic sectors. This can reveal key differences in investment strategy and risk exposures.

Here is the sector allocation for VUG and QQQ as of September 30, 2022:

Sector	VUG Allocation	QQQ Allocation
Information Technology	43.4%	48.8%
Consumer Discretionary	15.5%	17.2%
Healthcare	12.3%	10.5%
Communication Services	11.7%	7.7%
Financials	6.3%	0.6%
Industrials	5.4%	5.0%
Consumer Staples	3.6%	6.1%
Other	1.8%	4.1%

The sector allocation highlights the strong technology tilt of both ETFs, which account for their growth investing mandates. However, QQQ has an even greater weight towards technology at 48.8% compared to 43.4% for VUG.

Meanwhile, VUG has more exposure to sectors like financials and communication services. This results in VUG having a slightly more balanced sector allocation, while QQQ is heavily dependent on technology stocks.

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Comparing Number Of Holdings

The number of holdings can also impact the risk profile and diversification of an ETF:

• VUG holdings: 268
• QQQ holdings: 102

VUG holds significantly more stocks than QQQ. With over 150 more positions, VUG offers greater diversification benefits for investors within its universe of large cap growth stocks.

In contrast, QQQ is relatively concentrated in its top 10 holdings, which account for over 50% of its portfolio. The QQQ ETF is less diversified, meaning its performance is more tied to the fortunes of its largest constituents like Apple and Microsoft.

Comparing Index Concentration

In addition to comparing the number of holdings, it is useful to examine index concentration to gauge diversification. Index concentration refers to the weight of the top 10 companies in the index.

Here is the index concentration for each ETF:

• VUG top 10 weight: 23.3%
• QQQ top 10 weight: 55.7%

This data highlights that QQQ is heavily concentrated in its top 10 holdings, with over half its portfolio weight in just 10 stocks. VUG is significantly less top-heavy, with its top 10 holdings accounting for only 23% of the fund.

QQQ’s higher concentration means its performance is more dependent on the performance of companies like Apple, Microsoft, Amazon and Alphabet. VUG takes a broader approach to the growth stock universe.

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Pros And Cons Of VUG

Pros

• Offers low-cost exposure to a broad basket of 268 large cap US growth stocks
• Employs a rules-based methodology for selecting high growth companies
• Has outperformed the S&P 500 over the long run
• Provides strong diversification with low index concentration
• Very Low expense ratio of 0.04%

Cons

• Heavy concentration in information technology stocks
• Focus on growth style risks underperforming in some market environments
• Low dividend yield of 0.71%

Pros And Cons Of QQQ

Pros

• Provides exposure to the largest non-financial stocks listed on Nasdaq
• Strong performance historically with high exposure to tech leaders
• Liquid trading volume and options available
• Low expense ratio of 0.20%

Cons

• Heavily concentrated in top 10 holdings with over 50% of assets
• Information technology sector makes up nearly half the portfolio
• Lower dividend yield compared to S&P 500
• Higher expense ratio than VUG

Frequently Asked Questions (FAQ)

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VUG Vs. QQQ: Which Is The Better Investment?

So which ETF is the better choice for investors – VUG or QQQ? Here are a few key considerations:

• Goals – QQQ is likely better for investors seeking maximum growth exposure to mega-cap technology and internet stocks. VUG is preferable for investors wanting broad exposure to the growth stock segment with lower concentration.
• Costs – VUG has a significantly lower expense ratio, giving it a cost advantage over QQQ.
• Diversification – With far more holdings and lower index concentration, VUG offers greater diversification benefits within its universe. QQQ is relatively undiversified.
• Performance – Historically QQQ has slightly outperformed VUG, but with higher volatility. Both have handsomely beat the S&P 500 over the long run.
• Dividends – Neither ETF yields much, but VUG has offered superior dividend income.

In summary, VUG is likely the superior choice for investors concerned about concentration risk and expenses. But QQQ may be favored by traders and those seeking maximum exposure to the mega-cap technology stocks driving growth.

This covers the key points of difference between the Vanguard Growth ETF (VUG) and Invesco QQQ ETF (QQQ). In summary, VUG offers broader diversification within the growth segment, while QQQ provides concentrated exposure to the largest technology and internet stocks. Investors should weigh factors like concentration risk, expenses, performance history, and holdings when deciding between these two quality ETFs.