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MGK vs QQQ: Which Growth ETF Is Better?

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We compare MGK vs QQQ:

Vanguard Mega Cap Growth ETF (MGK) and Invesco (QQQ) are both among the best growth Exchange Traded Funds (ETFs).  They are one of two broad classifications of ETFs.

Growth ETFs invest in a collection of securities whose underlying companies have the ability for rapid growth.

This contrasts with the other category of ETFs, the value ETFs.  Value ETFs invest in stocks whose price is somewhat undervalued.

Many growth companies do not pay dividends to their shareholders; instead, they reinvest their earnings into their future growth.  Although MGK and QQQ are growth ETFs, they are not the same funds.

MGK tracks the CRSP US Mega Cap Growth Index

QQQ tracks the Nasdaq 100 index

This is a significant difference between the two.

Choosing MGK vs QQQ may have to rely on the performance of the two growth ETFs so far.

Let’s see how well these funds have performed and consider other factors that may form a bedrock for the best choice between MGK vs QQQ.MGK vs QQQ Graphic

 

MGK vs QQQ: What Is The Difference?

The main difference between MGK and QQQ is the company that offers the ETF.  MGK is offered by Vanguard, while Invesco offers QQQ.

The two ETFs have different issuers, Vanguard issues MGK, and Invesco PowerShare issues QQQ.

Vanguard offers MGK

Invesco offers QQQ

A second difference is the indexes that MGK and QQQ track.

MGK tracks the CRSP US Mega Cap Growth Index

QQQ tracks the NASDAQ 100 Index

CRSP is a leading company in the US that focuses on research quality, historical market data, and return.

The Nasdaq-100 is one of the major large-cap growth indexes globally, including 100 of the largest non-financial companies by market capitalization listed on the Nasdaq Stock Market.

MGK vs QQQ Comparison Chart

These two funds also adopt passive management styles of investment.  Furthermore, looking at the weight of each holding and the sectors, the two funds are identical.

Both MGK and QQQ are US Stocks Large Growth funds, which means both of them most likely are investing in about the same investments.

 

MGK vs QQQ Costs

Another major difference is the expense ratio.

MGK expense ratio is 0.07%

QQQ expense ratio is 0.20%

MGK vs QQQ Costs

To put some perspective on this, here is what a 0.13% fee (difference between MGK and QQQ) will cost you as an investor over 30 years.

Assuming you start with an initial investment of $100,000 and contribute $10,000 each year over the 30 years.  You will have $106,000 less in your account due to the fee because of the extra 0.13% expense ratio.

This does not include costs to buy and sell your shares.

The expense ratio is an essential factor to consider in choosing an ETF or any investment because it can significantly impact your investment.

It is one of the metrics investment managers use to measure the profitability of an investment.  If an investor pays high fees, it will affect investment returns.

This explains why cheaper funds have a higher likelihood of better returns.

Both MGK and QQQ can be considered low-cost ETFs.

However, QQQ is more than twice as expensive as MGK (0.2% vs 0.07%).

 

MGK vs QQQ Performance

QQQ has a slightly better performance than MGK; this makes it attractive to investors.

Considering a 90-day investment horizon, Invesco QQQ produces 1.02 times more return on investment than Vanguard MGK.

However, that will also mean that Invesco QQQ is 1.02 times more volatile than Vanguard Mega Cap.

MGK vs QQQ Performance

In the case of MGK vs QQQ, both are ETFs.  This spells low management expenses compared to other investments.

However, MGK costs less compared to QQQ.

As we saw, investment fees can be significant in the long run.  Therefore, the winner in terms of the cost of ETF management is MGK.

If you are considering a long-term investment, you may be better with a choice that will cost you fewer fees like MGK.

However, I would say QQQ is still a better option compared to other actively managed growth funds.

See my comparison of QQQ vs ARKK.

 

MGK Description

The Vanguard Group is one of the largest investment companies in the world.  They launched Vanguard Mega Cap Growth ETF (MGK) in 2007 to track the CRSP US Mega Cap Growth Index.

The Vanguard group is known for its focus on low-cost investing through mutual funds and ETFs, and MGK is one of its ETFs.MGK Profile

MGK is a growth ETF that focuses on the largest companies in the United States with a good growth history.  The index stocks that therefore select 70% of the highest market capitalization companies based on growth factors.

Vanguard uses some outstanding growth metrics to score securities with MGK; these include:

  • Future long-term growth in earnings per share (EPS)
  • Future short-term growth in EPS
  • Three-year historical growth in EPS
  • Three-year historical growth in sales per share
  • Current investment-to-assets ratio
  • Return on assets

Any stock included in the MGK index must meet these six growth factors.

With the same cap size split as its benchmark and similar weighting among sectors, MGK provides market-like exposure.

As with all Vanguard ETFs, MGK only discloses its holdings monthly.

 

MGK Holdings

Vanguard’s MGK is a broad ETF, diversified across different sectors:

  • Technology
  • Consumer Cyclicals
  • Healthcare
  • Industrials
  • Financials
  • Basic Materials
  • Consumer Non-Cyclicals

The fund is weighted heavily towards technology, which gives it an advantage since it is booming and constantly evolving.

Here are the top 10 holdings for MGK:

MGK Top 10 Holdings

Vanguard’s MGK is largely made up of Apple, Microsoft, Alphabet, and Amazon.

 

QQQ Description

Invesco QQQ is a growth ETF launched in 1999 by Nasdaq as the Nasdaq 100 Trust.  QQQ is designed to track the Nasdaq 100 index.

The name was changed in the early 2000s after PowerShare and Invesco acquired the index.

QQQ Profile

The fund closely tracks the standards and performance of the Nasdaq 100 Trust to replicate its return results.  However, the fund does not mirror the fees of the underlying index.

The Nasdaq 100 Index adopts a modified capitalization methodology that uses individual weights of included items according to their market capitalization.

Weighting allows constraints to limit the influence of the largest companies and balance the index with all of its members.

To accomplish this, Nasdaq reviews the index’s composition each quarter and adjusts weightings if the distribution requirements are not met.

 

QQQ Performance

Since its inception, the Invesco QQQ ETF has shown an incredibly good performance, consistently outperforming the S&P 500 benchmark index.  Year to date, the Nasdaq QQQ Invesco is up to five times more than the S&P 500 and outperforms the Dow Jones Industrial Average significantly as well.

The fund ranks in the top 1% of large-cap growth funds.

Due to QQQ’s outstanding performance in 2021, generating approximately $17 billion in net, the fund became one of the most popular funds in that year.

As of May 2021, the total asset of QQQ crossed the $100 billion milestones and has continued to grow.  It now has $135 billion in total assets.

 

QQQ Holdings

QQQ is the fourth-most popular ETF globally with 102 securities holdings, most of which are top technological companies.

These companies cut across various industries, including:

  • Cloud Computing
  • Payment Services
  • Electric Vehicles
  • Data Collection

QQQ excludes financial companies.  Invesco’s QQQ is a large capitalization index focused on technology companies.

Here are the top 10 holdings for QQQ:

QQQ Top Holdings

Invesco’s QQQ is largely made up of Apple, Microsoft, Amazon, and Tesla.

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MGK vs QQQ Winner: MGK

The most significant difference between the two funds is that MGK tracks the CRSP US Mega Cap Growth ETF while QQQ tracks the Nasdaq 100 Index.  Therefore, they are different funds.

My winner is Vanguard’s MGK because of the lower expense ratio and the similar performance.  It’s also a Vanguard ETF, with I always prefer.

If you are looking for a similar Vanguard ETF with an even lower expense ratio compared to MGK, take a look at Vanguard Growth Index Fund ETF (VUG).

Lastly, MGK and QQQ can be reliable investments.  Prominent investment management companies issue them, and the performance difference is not far apart.

So it would be best to consider your investment goals when choosing between MGK vs QQQ.

 


Disclaimer
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This information is my opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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