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Written by Katie Brockman for The Motley Fool->
MGK offers a significantly lower expense ratio than QQQ.
QQQ has outperformed on total returns over both the one-year and five-year periods.
MGK holds a more concentrated portfolio than QQQ.
Both the Vanguard Mega Cap Growth ETF (NYSEMKT:MGK) and the Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) target the giants of the U.S. market, focusing on high-growth companies that dominate their respective industries.
While QQQ tracks the 100 largest non-financial firms on the Nasdaq, MGK follows a mega-cap growth index, resulting in two portfolios with significant overlap but distinct risk-reward profiles for growth-oriented investors.
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months.
MGK is the more affordable option, as its expense ratio is less than a third of that of QQQ. While both funds provide low-cost access to growth, the difference in fees can impact long-term accumulation for high-balance accounts.
MGK focuses on the largest tier of growth stocks, holding 59 positions. Its sector allocation is led by technology at 55%, followed by communication services at 17% and consumer cyclical at 13%. Its largest positions include Nvidia, Apple, and Microsoft.
In contrast, QQQ tracks 102 holdings with a similar sector tilt: technology at 54%, communication services at 16%, and consumer cyclical at 12%. Like MGK, its largest positions are Nvidia, Apple, and Microsoft.
For more guidance on ETF investing, check out the full guide at this link.
QQQ and MGK both target large growth companies, but MGK is the narrower of the two. QQQ focuses on both large- and mega-cap stocks, while MGK specifically targets mega-caps.
Tech stocks make up just over half of each fund’s portfolio, but MGK is more concentrated in its top three holdings. Nvidia, Apple, and Microsoft account for 35.31% of MGK’s portfolio, compared to 20.87% for QQQ. This could potentially lead to a difference in total returns — for better or worse — depending on how those particular stocks perform.
Risk profiles are similar, with the two funds showing comparable betas and max drawdowns. However, QQQ has slightly outperformed MGK in both one- and five-year total returns.
Fees could also be a selling point for some investors. MGK charges a lower expense ratio of 0.05%, compared to QQQ’s 0.18%. This means you’ll pay $5 per year in fees for every $10,000 invested in MGK, or $18 per year for every $10,000 invested in QQQ. Over time, this could add up to thousands of dollars in fees.
QQQ could be a better fit for investors seeking slightly more diversification across the large-cap growth segment of the market, while MGK may be the right choice if you’re looking for targeted exposure to mega-cap growth stocks.
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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