VOOG: A Great Bounceback Play

ETFS

Thesis Summary

The Vanguard S&P 500 Growth ETF (NYSEARCA:VOOG) offers a variety of quality, blue-chip stocks that are sure to bounce once the market has bottomed. With large exposure to the technology and communication sectors, the fund will likely offer great returns in the coming years. Consider scaling into this fund as stocks find a bottom and what I consider the final stretch of this bull market resumes.

ETF Overview

Today we will be analyzing the VOOG ETF. Over the past few months, we have looked at and compared quite a few Vanguard funds. Investing in Vanguard ETFs is an efficient and easy way to gain exposure to equities. If you’d like to learn more about Vanguard ETFs, I encourage you to visit our profile.

VOOG tracks the performance of the S&P 500 Growth Index. It has matched the performance perfectly since its inception in 2010. The S&P 500 Growth Index lists companies in the regular S&P with a “growth” profile.

What exactly does this mean? While there can be a variety of ways to classify companies, the S&P Growth Index uses three factors: sales growth, the ratio of earnings change to price, and momentum. These are the criteria that determine which companies “belong” to the S&P Growth Index. Generally, we will find large-cap, blue-chip stocks.

Holdings

As mentioned above, the kinds of companies we will see in the fund are household names, with a certain predilection for technology companies.

Source: YCharts

We can see here the top 15 holdings of VOOG and their most recent daily performance. As we can see, the stocks in the fund have rebounded with the market, and more so. The regular S&P 500 is up only 0.21%, while the VOOG fund is up 0.31% on the day. The only company that stands out as a clear underperformer is Procter & Gamble Co. (PG).

Source: Seeking Alpha

As far as sector weight goes, the fund invests almost 1/3 of its holdings in technology companies. Communications, Consumer cyclical, Healthcare, Financials and Industrials make up around 50%, while the rest is spread out amongst the remaining sectors. Noticeably, the fund has very little exposure to Utilities, 0.76%, and Energy, 0.96%.

Why I like VOOG

I quickly fell in love with VOOG as I went through its holdings. The fund is filled with quality, cash-rich companies. Alphabet (GOOG) (NASDAQ:GOOGL), Amazon (AMZN) Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) are no-brainers in this day and age.

Given the current correction we are witnessing, it is now more important than ever to invest in big, established companies. As other weaker companies in the sector fold, these giants will be around to pick up the pieces in terms of both talent and resources through M&A and market share.

Another great thing I love about this fund is that it is barely exposed to energy. The energy sector has been the hardest hit than any in the last few months. Not just because of coronavirus, but also because of the breakdown in the price of oil. Highly indebted energy companies are going bankrupt, and while this also offers a potential investment opportunity (if you pick the right companies), it is now a very bad time for the energy sector.

Finally, while past performance is no indicator of future returns, it is worth mentioning that the fund has outperformed the S&P 500 in the last 10 years. This is because the tech sector has simply outperformed the market in general, and I expect this to continue in the future.

Source: YCharts

Takeaway

Ad I’ve discussed in some of my most recent articles, I believe we are not in a bear market. What we are seeing here is a correction, which will likely set us up for another great run in equities. However, I do believe this correction is far from over. Having said this, timing a bottom is near impossible, so I recommend using a flexible scale in approach. Consider slowly scaling into equities. I would start with about 20% exposure and increase my investment as the market goes down, lowering your average cost. I believe by the end of August, we could see a definite reversal of the trend if coronavirus threat subsides.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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