For the past two decades, growth-focused companies have been the star performers in the stock market. Investors are increasingly attracted to innovators in areas such as medicine, software-as-a-service (SaaS), and alternative energy. These companies have the potential to revolutionize the world with their groundbreaking products and services.
Recently, two powerful themes have caught the attention of growth investors for their immense potential: artificial intelligence (AI) and next-generation weight loss drugs. If you’re looking to invest in these promising areas, one exchange-traded fund (ETF) stands out as a no-brainer buy: the Vanguard Index Funds — Vanguard Growth ETF (VUG).
Two booming markets, led by innovation powerhouses
The global AI market is projected to skyrocket from $196 billion in 2024 to $1.3 trillion by 2032, representing a compound annual growth rate (CAGR) of 26.6% during the period. The leaders in AI include tech giants like Nvidia, Alphabet, Microsoft, Adobe, Arista Networks, and Palantir Technologies. Nvidia holds the position as AI’s most important infrastructure company, but scores of AI players hold enormous growth potential as well.
The market for next-generation weight loss drugs is expected to have a blistering CAGR of 49% from 2023 to 2030. The market value is projected to surge from $6 billion in 2023 to $100 billion by 2030, according to analysts at Goldman Sachs.
Eli Lilly and Novo Nordisk are leading the pack in this space. But several other companies like Viking Therapeutics, Amgen, and Pfizer also plan to launch competitive therapies before the end of the decade.
How does the Vanguard Growth Fund fit into the picture?
The fund holds shares in most of the largest and fastest-growing companies in these two emerging markets. But while it offers high potential for capital growth, it is considered riskier than more diversified index ETFs like the Vanguard S&P 500 ETF.
That being said, the Vanguard Growth ETF has consistently outperformed the S&P 500 in recent years as a result of its heavy tilt toward companies operating in the fields of AI/weight loss medications. The graph below illustrates this point:
That’s not all: The ETF also has an ultra-low expense ratio of 0.04%, significantly lower than the category average of 0.96%. And this Vanguard large-cap growth fund offers a modest yield of 0.53%, which is enough to cover its associated fees. In terms of performance, the fund has delivered a 10-year average annual gain of 15.07%, making it one of Vanguard’s top-performing large-cap funds over this period.
What about the fund’s holdings? The top five are Microsoft, Apple, Nvidia, Amazon, and Meta Platforms. All of these companies are leaders in the AI revolution. Eli Lilly, the manufacturer of the weight loss drug Zepbound, is currently the fund’s eighth-largest holding.
The one drawback with this fund is that it isn’t highly diversified. It holds shares of only 199 companies, which is a rather modest portfolio compared to many other large-cap growth ETFs. Still, it is considerably less risky than an individual stock.
Final thoughts
The ETF presents an opportunity to tap into the mind-boggling growth prospects of AI and weight loss drug stocks. It offers the added advantages of diversification and professional management inherent in Vanguard funds.
What’s more, the Vanguard Growth ETF provides a straightforward and cost-effective way to invest in these dynamic sectors, eliminating the need to select individual stocks. This Vanguard fund thus scans as an obvious choice for investors seeking a convenient way to gain exposure to these potent themes in the years ahead.
— George Budwell
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Source: The Motley Fool