This Vanguard ETF Has Increased 40% in 12 Months. Buy It Now: No Brainer?

Some investors say exchange-traded funds (ETFs) are like Aesop's tortoise and hare, two odd competitors who race. ETFs may win the long run by moving slowly but persistently, they believe. This cliché may apply to some ETFs. There are exceptions. Over the past year, one Vanguard ETF has risen 40%.  

Huge winner What ETF performed so well? Vanguard Mega Cap Growth Index Fund ETF (NYSEMKT: MGK). As its name implies, this Vanguard fund owns mega-cap stocks (200 billion or more) with high growth potential.  

Vanguard Mega Cap Growth Index Fund ETF owns 82 stocks. These stocks have a median market cap of $1.3 trillion. The ETF's stocks have grown 19% annually in earnings over the past five years.  

Despite its big 12-month return, this Vanguard ETF didn't start winning recently. Since December 2007, the fund has returned 12.72% annually. Over the past five years, it has grown 19% yearly.  

Vanguard Mega Cap Growth Index Fund ETF fees won't take much out of your gains. It has a low 0.07% yearly expense ratio. Similar ETFs have 0.96% average expenses, 13 times greater.  

Why Vanguard ETF keeps rising There's a simple reason this Vanguard ETF keeps rising. Many of its stocks are hot. Microsoft dominates the Vanguard Mega Cap Growth Index Fund ETF. Generative AI has sent the tech giant's share price up roughly 50% in the past year.  

AI has driven several other ETF top stocks. Its third-largest position, Amazon, rose almost 80%. The ETF's fourth-largest holding, Nvidia, has tripled in value. Meta Platforms, No. 5, is up 140%. Alphabet, No. 6, rose over 45%. Vanguard Mega Cap Growth Index Fund ETF owns more than tech equities. Eli Lilly is the fund's sixth-largest holding. Over the past year, this huge pharma stock has doubled.  

Is Vanguard Mega Cap Growth Index Fund ETF a must-buy? The Vanguard Mega Cap Growth Index Fund ETF may seem like a no-brainer buy given its velocity. Is it? I wouldn't go there. Two downsides may exist. First, ETF value may be a concern. The fund's stocks have a sky-high 38.3 price-to-earnings ratio. Many ETF stocks are expanding rapidly. However, the ETF's top holdings' forward-earnings multiples show they're expensive.  

The Vanguard Mega Cap Growth Index Fund ETF lacks diversification compared to other Vanguard ETFs. A huge 58.7% of the fund is in IT stocks. Consumer discretionary equities account for 21.2%. The concentration in two sectors could be detrimental during a recession. I recommend this Vanguard ETF for long-term investors. You should still think before buying.  

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