VOOG ETF: The Summer Swoon May Persist In Growth Stocks (NYSEARCA:VOOG)

The Vanguard S&P 500 Growth Index Fund (NYSEARCA:VOOG) was flying high through mid-July. The year-to-date rally, dividends included, reached nearly 30% while its counterpart, the Vanguard S&P 500 Value Index Fund ETF (VOOV) was up a mere 6% through early in the second half.

That trend has come partially undone as we venture further into a bearish seasonal period. VOOG’s 2024 rally has been nearly halved, now up just 17% total return. At the same time, VOOV has narrowed the performance gap to just eight percentage points as a rotation appears ongoing.

I have a hold rating on VOOG. I like the fund’s low expense ratio, and I see it as a strong long-term candidate for a taxable portfolio due to its low turnover and yield, but I expect more volatility over the next couple of months given weak calendar trends and a stretched valuation. Its technical situation is mixed, and I will highlight key price levels to monitor later in the article.

Value Playing Catch Up As Growth Corrects

According to the issuer, VOOG invests in stocks in the Standard & Poor’s 500 Growth Index, composed of the growth companies in the S&P 500. The ETF focuses on closely tracking the index’s return, which is considered a gauge of overall U.S. growth stock returns. VOOG offers high potential for investment growth; share value rises and falls more sharply than that of funds holding bonds.

VOOG is a large ETF with more than $12 billion in assets under management as of August 8, 2024. Its annual expense ratio is low at just 10 basis points, while the forward dividend yield is paltry at 0.76%, but that can actually be a benefit for asset location purposes (i.e., housing low-yield positions in taxable accounts). Share-price momentum had been very impressive through the first 28 weeks of the year, but the bears have asserted themselves right about as the same time last year. Recall that a small correction also began in August of 2022.

But VOOG sports a healthy risk rating – many of the ETF’s top holdings boast strong balance sheets and generate high cash flow. Not surprisingly, the fund’s standard deviation trends are not all that high, and liquidity indicators are solid. Average daily volume is about 163,000 shares while VOOG’s median 30-day bid/ask spread is often tight, averaging four basis points, per Vanguard.

Looking closer at the portfolio, the 4-star, Gold-rated ETF by Morningstar plots along the top row of the style box, indicating its large (even mega) cap bent along with its focus in the growth style. The performance of growth often depends on macro conditions, and the group can outperform when GDP growth is actually low – it’s a situation in which growth-oriented investments become scarce, and something like VOOG can outperform value. When expectations for a strong domestic economy rise, then value can snatch the spotlight.

For now, VOOG trades near 30x earnings – a high multiple – while long-term EPS growth is high above 15%. The resulting PEG ratio is close to two – a bit lofty in my view.

VOOG: Portfolio & Factor Profiles

VOOG generally behaves similarly to the Nasdaq 100 ETF (QQQ). Its 52% weighting in the Information Technology sector places a significant wager in that corner of the US market – the top three positions command more than one-third of the fund, so there’s some concentration risk. Monitoring both fundamentals and technicals on Microsoft (MSFT), Apple (AAPL), and NVIDIA (NVDA) is important.

VOOG: Holdings & Dividend Information

While I very much like the notion of buying VOOG on this current pullback, the seasonal trend is concerning. August has historically been a weaker month with outright bearish returns over the past 10 years in September.

VOOG: Weak Seasonality Ahead

The Technical Take

With a premium valuation, concentrated allocation, and an uncertain macro backdrop with Fed interest rate cuts ahead, VOOG’s technical chart likewise has mixed readings. Notice in the graph below that shares are precisely 10% below the all-time high notched last month. The fund briefly fell below the critical $305 support point, but that now has the hallmarks of a bullish false breakdown. Also take a look at the long-term 200-day moving average – it’s rising, suggesting that the bulls control the primary trend, even with the significant drawdown.

What’s more, the RSI momentum oscillator notched technical oversold conditions just recently. I usually don’t like to see assets approach an RSI of 30, but this move has similar features to the March-April pullback. There’s also not a whole lot of overhead supply up to the $350 high, so I cannot rule out a continuation of the snapback. But if VOOG falls under the 200dma, then a more protracted correction could be in the works.

For now, the $295 to $305 range is support and $350 is resistance.

VOOG: Key Support Near the Rising 200dma

The Bottom Line

I have a hold rating on VOOG. I see a material chance of a continued pullback in the short and intermediate term while the ETF’s strong liquidity and low expense ratio make it a solid long-term holding for asset location and style investors.