How Vanguard Growth Index Fund Reveals Hidden Value in Stocks
The vanguard growth index fund (ticker VUG) is a passively managed ETF holding about 230 U.S. large-cap stocks screened for above-average earnings growth, revenue growth, and return on assets. At 0.04% annually, it is one of the cheapest ways to own a concentrated slice of U.S. growth equity. What most investors miss is that VUG's construction methodology, weighting by market capitalization among a growth-screened universe, creates a systematic way to identify which holdings the market is pricing for perfection and which still offer something resembling value. This case study works through VUG's holdings to show you how.
Key Takeaways
- VUG's top 10 holdings make up about 54% of the fund, meaning you are primarily buying Apple (AAPL, P/E 28.3, ROIC 45.1%), Microsoft (MSFT, P/E 32.1), and Nvidia at index-weighted prices.
- The CRSP U.S. Large Cap Growth Index that VUG tracks uses five factors: future long-term growth, future short-term growth, historical 3-year EPS growth, historical 3-year sales growth, and return on assets.
- Among VUG's 230 holdings, roughly 40 trade at EV/FCF multiples below 20, which is the zone where growth-oriented investors can find names where the market has underpriced the business despite its inclusion in a growth index.
- Berkshire Hathaway (BRK.B) is not in VUG because its P/B of 1.5 and modest EPS growth rate fail the CRSP growth screen, illustrating that value and growth are still treated as separate factor categories by index providers.
- VUG's 10-year CAGR of 14.1% annualized is 1.1 points per year above the S&P 500 over the same period, driven almost entirely by its technology concentration during the AI investment cycle.
- Use the ValueMarkers DCF calculator to identify which VUG holdings offer intrinsic value at current prices rather than buying the whole basket indiscriminately.
How VUG's Construction Methodology Works
CRSP applies its growth screen to the large-cap U.S. universe and assigns each stock a growth score based on five factors. Stocks above the median growth score join the growth index; those below join the value index; those near the median get partial weights in both.
The result is a fund that holds growth companies at market-cap weights, which means the largest companies by market value dominate the index regardless of their relative growth rates within the universe.
| VUG Factor | Measurement | Weight in Score |
|---|---|---|
| Future long-term EPS growth | Analyst consensus 3-5yr | High |
| Future short-term EPS growth | Analyst consensus 1yr | High |
| Historical 3-year EPS growth | Reported earnings | Moderate |
| Historical 3-year sales growth | Reported revenue | Moderate |
| Return on assets | Net income / Total assets | Moderate |
Apple passes this screen on all five factors: analysts project strong EPS growth, historical 3-year EPS growth has been solid, revenue growth has been steady, and ROA runs near 30%. Apple's P/E of 28.3 and ROIC of 45.1% confirm that this is not a value stock by traditional measures, but the quality of the underlying business justifies its inclusion in a growth screen.
The Concentration Problem in VUG
Because VUG weights by market capitalization, five names drive roughly 40% of the fund's daily price movement.
| Holding | Ticker | Approx. Weight | EV/FCF | ROIC |
|---|---|---|---|---|
| Apple | AAPL | 14.2% | 27.4 | 45.1% |
| Microsoft | MSFT | 12.8% | 34.1 | 38.4% |
| Nvidia | NVDA | 11.4% | 39.8 | 58.7% |
| Amazon | AMZN | 6.1% | 42.3 | 18.3% |
| Alphabet | GOOGL | 5.6% | 22.1 | 29.6% |
| Top 5 Total | 50.1% |
If Nvidia's earnings disappoint by 15%, the fund drops roughly 1.7% from that single name alone. That is the concentration tax you pay for owning a market-cap weighted growth fund rather than an equal-weighted one.
The flip side: the EV/FCF on Apple and Alphabet at 27.4 and 22.1 respectively is not extreme for businesses growing free cash flow at 10-15% annually. These are the positions inside VUG worth holding through drawdowns.
Where Value Hides Inside a Growth Index
The useful analytical exercise is identifying which VUG holdings have been de-rated by the market while remaining in the growth index because their fundamental growth metrics still qualify them.
A stock can be inside VUG (qualifying on growth factors) while simultaneously trading at a significant discount to its intrinsic value. This happens when:
- The market has penalized the stock for a one-time earnings miss.
- Sector rotation has reduced the multiple without changing the business.
- Macro fears (rate sensitivity, regulatory risk) have suppressed the share price temporarily.
The EV/EBIT and EV/FCF multiples are the fastest way to scan for these situations. Among VUG's 230 holdings in mid-2026, roughly 35-40 trade below 20x EV/FCF, a threshold that has historically been associated with above-average forward returns in quality growth stocks.
How VUG Compares to the S&P 500 Index Fund
The choice between VUG and an S&P 500 index fund comes down to how much additional technology and growth concentration you want, and how much you are willing to accept in higher volatility during growth drawdowns.
| Metric | VUG | S&P 500 Index |
|---|---|---|
| Expense Ratio | 0.04% | 0.03% |
| Holdings | 230 | 500 |
| Technology Weight | 46.8% | 29.8% |
| 10-Year CAGR | 14.1% | 13.0% |
| Max Drawdown (2022) | -33.2% | -19.4% |
| Dividend Yield | 0.5% | 1.4% |
| Median EV/FCF | 28.3 | 21.6 |
The S&P 500 index fund is a better diversification tool. VUG is a better concentration tool. The question is not which is superior but which matches your objective. An investor building a growth-tilted portfolio might hold 60% S&P 500 and 20% VUG, capturing the growth premium without betting the entire portfolio on it.
What UnitedHealth's Exclusion From VUG Tells You
UnitedHealth (UNH) is currently absent from VUG because its EPS growth rate has moderated below the CRSP growth threshold. Yet UNH carries a dominant market position, pricing power, and a ROIC well above its cost of capital.
This illustrates a key limitation of rules-based growth indices: they exclude quality compounders when growth temporarily decelerates, often exactly when those businesses offer the best entry prices.
The ValueMarkers screener avoids this problem by evaluating companies on all five VMCI dimensions simultaneously: Value (35%), Quality (30%), Integrity (15%), Growth (12%), and Risk (8%). A company like UNH might score high on Quality and Integrity even when its Growth score temporarily declines, keeping it in the candidate set when a pure growth screen would drop it.
The Dow Jones Connection to VUG Holdings
The question "what is a Dow Jones index" often comes up when investors compare VUG to the Dow Jones Industrial Average. The key distinction: VUG is rules-based and CRSP-administered; the Dow is committee-selected and price-weighted.
The overlap between VUG and the Dow is significant. Apple, Microsoft, Salesforce, Amazon, and Honeywell all appear in both. Where they diverge tells you something about the different selection criteria. UnitedHealth is in the Dow but not VUG. Nvidia is in VUG but not the Dow. The Dow's committee tends to prefer established names; VUG's algorithm rewards recent growth momentum.
For value investors, neither index is the right starting point. The S&P 500 provides broader exposure, and then individual stock selection from that universe, guided by fundamental analysis, is where excess return actually comes from.
Further reading: Investopedia · CFA Institute
Why vanguard index fund Matters
This section anchors the discussion on vanguard index fund. The detailed treatment, formula, and worked examples appear in the body of this article above. The points below summarize the most important takeaways for value investors who want to apply vanguard index fund in real portfolio decisions. ValueMarkers exposes the underlying data on every covered ticker via the screener and stock profile pages, so the concepts in this article translate directly into actionable filters.
Key inputs for vanguard index fund
See the main discussion of vanguard index fund in the sections above for the full treatment, including the inputs, the calculation methodology, the typical sector benchmarks, and the most common pitfalls to avoid. The ValueMarkers screener lets value investors filter the full universe of 100,000+ stocks across 73 exchanges using vanguard index fund alongside the rest of the 120-indicator composite, with sector percentiles and historical trends shown on every stock profile.
Sector benchmarks for vanguard index fund
See the main discussion of vanguard index fund in the sections above for the full treatment, including the inputs, the calculation methodology, the typical sector benchmarks, and the most common pitfalls to avoid. The ValueMarkers screener lets value investors filter the full universe of 100,000+ stocks across 73 exchanges using vanguard index fund alongside the rest of the 120-indicator composite, with sector percentiles and historical trends shown on every stock profile.
Frequently Asked Questions
what is a dow jones index
A Dow Jones index is any index published under the Dow Jones brand by S&P Dow Jones Indices, most commonly the Dow Jones Industrial Average, a price-weighted index of 30 large U.S. companies. The family also includes the Transportation Average (20 stocks) and Utility Average (15 stocks). Unlike VUG's rules-based construction, Dow Jones indices are maintained by an editorial committee.
what percentage of united health group is owned by vanguard
Vanguard owns approximately 8-9% of UnitedHealth Group's outstanding shares across all of its funds, making it one of the largest institutional holders. This ownership is split across Vanguard's total market, S&P 500, and sector funds rather than VUG specifically, since UNH does not currently meet VUG's growth screening criteria.
how to invest in s&p 500 index
The most cost-efficient route is through a low-cost index fund or ETF tracking the S&P 500. Vanguard's VOO charges 0.03%, iShares' IVV charges 0.03%, and Fidelity's FZROX charges 0%. Open a brokerage account, fund it, and buy shares in any of these. You receive proportional ownership of 500 large U.S. companies and pay virtually nothing in annual fees.
what is cagr growth rate
CAGR is the compound annual growth rate. For VUG's 10-year CAGR of 14.1%, this means a $10,000 investment made 10 years ago has grown to approximately $37,700 today, as if the fund returned exactly 14.1% each year. In reality, yearly returns varied widely, from -33% in 2022 to +46% in 2020.
is fxaix a mutual fund
Yes. FXAIX is the Fidelity 500 Index Fund, a mutual fund tracking the S&P 500 with an expense ratio of 0.015%. It is structurally similar to VOO (Vanguard S&P 500 ETF) in terms of holdings and returns, but operates as a mutual fund rather than an ETF, meaning it trades at end-of-day NAV rather than intraday. For most long-term investors, the difference is negligible.
what is s&p 500 index fund
An S&P 500 index fund is a pooled investment vehicle that holds all 500 stocks in the S&P 500 index at their market-cap weights. The S&P 500 includes the 500 largest publicly traded U.S. companies by market capitalization, from Apple ($3.4 trillion) down to companies just above the minimum $14.5 billion threshold. The index is managed by S&P Dow Jones Indices and reconstituted quarterly.
Use the ValueMarkers DCF calculator to analyze any individual VUG holding and determine whether the current price offers adequate intrinsic value before adding to a position.
Written by Javier Sanz, Founder of ValueMarkers. Last updated April 2026.
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