Vanguard Mega Cap constructs a low turnover, market-cap-weighted portfolio of the largest U.S. stocks at a low cost. Both of its share classes earn a Morningstar Analyst Rating of Silver.

The fund tracks the CRSP US Mega Cap index, which pulls in stocks constituting the top 70% of the U.S. market and weights them by their float-adjusted market cap. To mitigate trading costs the index spreads rebalancing trades over five days and implements buffers along the lower market-cap bound to reduce unnecessary turnover.

Mega-cap stocks attract liquidity and widespread attention, such that new information is quickly reflected in their prices. This makes market-cap weighting a sensible approach here. By channeling the market’s view on stocks’ relative valuations, the portfolio tilts toward the largest companies that dominate their industries, imparting a slight quality tilt on the portfolio.

On the other hand, the fund’s mega-cap orientation means that the fund will lag when smaller stocks rally. However, the stocks in this portfolio usually come with sound financial footing and are leaders in their industry, which can limit the risk of underperformance.

The fund accurately captures the opportunity set available to its Morningstar Category peers. The fund's sector allocations did not deviate by more than 6% from the category average, as of March 2023. However, the fund has traded at slightly higher valuations over the past three years as growth stocks seized a bigger portion of the U.S. market.

Despite narrowly targeting mega-cap stocks, the fund is better diversified than its average peer in the large-blend category. The top 10 holdings make up 30% of the portfolio, which is 20 percentage points lower the category average.

The fund’s fee is its greatest strength, with the exchange-traded share class charging a paltry 0.06%. This fund’s ability to mimic the contours of the large-blend category amplify its cost advantage, driving sound-category relative returns on both an absolute and risk-adjusted basis. Over the 10 years through March 2023, the ETF share class has outperformed its average category peer by 2.26 percentage points. The fund should continue to outperform in the long run.

Analyst Rating

Cheap exposure to mega-caps.

Associate Analyst

Mo'ath Almahasneh

Microsoft

Apple

NVIDIA

Amazon

Alphabet

Berkshire Hathaway Inc. - Ordinary Shares - Class B

Eli Lilly

Broadcom

The fund adequately mimics the contours of the large-blend category, but it narrows the opportunity set by focusing only on mega-cap stocks. It earns an Above Average Process Pillar rating.

The fund replicates the CRSP US Mega Cap Index, which weights stocks constituting the top 70% of the U.S. market. To mitigate unnecessary turnover, the index implements buffers along the lower market-cap bound. They only remove holdings when they pass the 76% market-cap breakpoint and add new securities when they pass the 64% breakpoint. This has kept turnover below 10% during the last 10 years. It also spreads the rebalancing process over a five-day period to reduce potential market impact costs. The index is reconstituted quarterly.

Above Average

Process

Vanguard's Equity Index Group boasts seasoned managers and a dedicated supporting staff that's well-equipped to provide tight index tracking, earning it an Above Average rating.

Gerard O’Reilly and Michelle Louie are the named managers on this strategy. O’Reilly, a principal at Vanguard, has been with the firm since 1992. Louie joined the firm in 2010 and has worked in investment management since 2011.

The team's large supporting cast features a global team of dedicated personnel and sophisticated, scalable technology that help reduce managers' workload.

The managers are responsible for the fund's trading, providing more portfolio insights than a stand-alone trader. Vanguard frequently rotates its managers to promote breadth and depth across the team. Its independent risk management team works closely with the managers to monitor trades and review any potential issues. Managers' compensation is tied to performance using a combination of tracking error and excess return metrics, which aligns their interests with investors'.

People

The Vanguard Group retains a High Parent rating. 

Mutual ownership, low costs, and a direct-to-investor playbook have helped spur Vanguard's leadership within the United States. Client service missteps notwithstanding, Vanguard over the past decade has grown its market share of U.S. open-end and exchange-traded fund assets at about a 5% annualized clip. At that rate, Vanguard's portion of the U.S. industry will cross 50% around 2035.

True, some competitors can now match or even undercut Vanguard on fees for broad market exposure. But Vanguard's burgeoning advice business could help it keep or even extend that lead. Through Digital Advisor and Personal Advisor Services, Vanguard has built an increasingly compelling ecosystem of advice for investors with simple to complex needs.

Vanguard is also using its advice business to expand overseas, but that's a work in progress. Of Vanguard's USD 7.6 trillion in global assets under management in March 2023, non-U.S. investors owned less than 10%, a figure that has changed little in recent years. Strategic shifts in China and other markets account for the slow pace, including returning money to institutions that had been layering on fees. Vanguard hopes to recoup that money and more by focusing on individual investors and the advisors who serve them. Provided Vanguard sticks to its playbook, its advantages should translate into success abroad, too.

High

Parent

Vanguard Mega Cap ETF

MGC tracks a market-cap-weighted index that covers 70% of the market capitalization of the US equity market.

The fund tracks a market cap-weighted index of mega-cap stocks in the US.

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Vanguard Mega Cap ETF is a low-cost option that captures strong returns from mega-cap, big tech holdings. MGC offers the greatest diversification compared to other mega-cap funds, along with relatively low volatility and a high dividend yield. MGC may serve investors well in the event of a pullback in the "Magnificent Seven" big tech stocks due to its high diversification and inclusion of large-cap holdings.

MGC: A Nice Balance Between Low-Cost, Mega-Cap Gains And Defensive Diversification

If you're interested in broad exposure to the Large Cap Blend segment of the US equity market, look no further than the Vanguard Mega Cap ETF (MGC), a passively managed exchange traded fund launched on 12/17/2007.

Should Vanguard Mega Cap ETF (MGC) Be on Your Investing Radar?

Vanguard Mega Cap ETF provides exposure to the largest U.S. companies and has a diversified portfolio across multiple sectors. The top holdings of MGC include Apple, Microsoft, Amazon, Tesla, and Alphabet. Investing in MGC offers the potential for robust growth and strong cash flow, but there may be risks associated with the heavy allocation in the tech sector.

MGC: The Big Can Get Bigger

Vanguard Mega Cap ETF offers better downside protection and faster rebounds after market downturns compared to small-cap and mid-cap peer funds. MGC has slightly outperformed the S&P 500 index in the past year, delivering a return of 21.9%. MGC's valuation is expensive relative to the historical average, and there is a likelihood of an economic recession in the first half of 2024.

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Vanguard Mega Cap ETF has an expense ratio of only 0.07%. As such, it's a great way for investors to gain diversified exposure to America's largest blue-chip companies. The MGC ETF has a 10-year average annual return of 12.3% and with $3.7 billion in assets is a very liquid fund.

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MGC has outperformed VOO and SPY over the past 5 years by 8-9%. MGC invests its assets in the largest companies within the U.S. offering a level of stability that can mitigate risk in the face of adversity.

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For the Vanguard Mega Cap ETF (MGC), we found that the implied analyst target price for the ETF based upon its underlying holdings is $124.70 per unit.

The Vanguard Mega Cap ETF Implied Analyst Target Price: $125

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