Mega Cap Growth ETF and QQQ ETF are one of the best Growth Exchange Trade Funds. Both ETFs trade in the US Stock market and invest in a portfolio of securities whose underlying companies have the potential for rapid growth. Most of these rapid-growth companies do not have any policy to pay dividends to their shareholders. They reinvest these earnings into future growth instead of paying. Both these funds also adopt a passive investment management style. Furthermore, looking at the weighting of each holding and sector, both funds look similar.
MGK and QQQ are both growth ETFs but which one is better than the other? For this, we will have to consider some factors and their performance. Let's look at their performance and the other factors that can form the basis for the best choice between MGK vs. QQQ.
MGK and QQQ Descriptions are as follows:
Vanguard Mega Cap Growth ETF launched MGK in 2007. The company is known for its objective; low-cost investing through EFTs and mutual funds. MGK was specially launched to track the CRSP US Mega Index. MGK follows a predetermined strategy instead of actively managed by the fund manager
MGK focuses on the biggest companies in the US with a good growth history. This strategy makes it a large-cap growth ETF that opens the doors to participate in the growth of some of the largest companies. Vanguard considers the following growth factors to score securities with MGK.
• Future long-term growth in earnings per share (EPS)
• Three-year historical growth in EPS
• Three-year historical growth in sales per share
• Future short-term growth in EPS
• Current investment-to-assets ratio
• Return on assets
QQQ Description
Invesco launched QQQ in 1999 that is specially designed to track Nasdaq 100. QQQ closely tracks benchmarks and performance of the Nasdaq 100 index to replicate the return results. Nasdaq 100 adopts a modified capitalization method that utilizes individual weights of items as of their market capitalization. These weighting constraints limit the influence of large companies and balance the index among all the members. To accomplish the balance, Nasdaq reviews index composition after each quarter and adjust the weightings if there is any imbalance in the distribution.
QQQ is a large-cap growth ETF and focuses to invest in those companies that are expected to grow faster than the broader market.
MGK and QQQ holdings are as follows:
MGK Holdings
MGK is a broad-based ETF that is diversified across the following sectors:
• Technology
• Basic Materials
• Consumer Cyclicals
• Industrials
• Financials
• Healthcare
• Consumer Non-Cyclicals
QQQ Holdings
QQQ is the fourth most popular ETF that is diversified, so some top technological companies:
• Cloud Computing
• Payment Services
• Electric Vehicles
• Data Collection
QQQ fund has more inclination towards technology which gives it an advantage as today the technology sector is booming and continuously developing.
MGK and QQQ: Major Differences
MGK and QQQ is not the same funds as they look; some significant differences are as
follows:
• MGK and QQQ are both ETFs but they track the different indexes; MGK tracks the CRSP US Mega Cap Growth Index and QQQ track the Nasdaq 100 index.
• Different companies offer both ETFs, Vanguard offers MGK, and Invesco offers QQQ
• MGK expense ratio is 0.07%, and the QQQ expense ratio is 0.20%; the expense ratio can significantly impact your return on investment.
MGK vs. QQQ: Performance Comparison
Seemingly, QQQ has a slightly better performance than MGK, which generates some attraction for investors. Considering a 90-day investment horizon, Invesco QQQ generates a 1.02 times higher return than Vanguard's MGK. But here, the expense ratio is an important factor that must be considered. MGK expense ratio is less than QQQ, and the expense ratio can significantly impact the return on investment in the long run. For every $10,000 investment, you will pay $7 for MGK and $20 for QQQ.
So, if you're looking at a long-term investment, you should choose an option that pays lower expenses like MGK. However, QQQ has performed very well over MGK during the past ten years. So, I think QQQ is still a better option than MGK.
MGK vs. QQQ: Fund Size Comparison
Both MGK and QQQ hold a huge number of assets under management. MGK has $10.26B under management, and QQQ has $148.73B under management. The average daily volume of QQQ is $14.47B, and MGK has an average daily volume of $70.36M. The fund size of any ETF is a good indication of how much other investors trust in this fund. Nasdaq 100 index, which is tracked by QQQ, has 103 number of holdings, and CRSP US Mega Cap Growth Index, which MGK tracks, has 100 holdings.
Which one is best? MGK or QQQ?
The major difference between both funds is; MGK tracks CRSP US Mega Cap Growth and QQQ track Nasdaq 100 index. So, they are two different funds. MGK mainly focused on big companies with a remarkable growth history. So, choosing MGK can open the doors for you to participate in large growth companies.
QQQ ETF has shown incredible performance since its inception. Year to date, the Nasdaq QQQ outperforms the Invesco S&P 500 by more than five times and also significantly outperforms the Dow Jones Industrial Average.
If we see the expense ratio, MGK has a lower ratio than QQQ. This factor may not be so effective on the return of short-term investment but can be effective on the return of long-term investment.
So, in my opinion, It would be better to keep an eye on the investment goals while choosing and then decide which one you want to choose.
MGK vs. QQQ: Conclusion
MGK and QQQ Both are one of the best ETFs in the US market. Both ETFs track specific markets and can be reliable investments. Some prominent investment management companies issue them, and the performance gap between them is not far off. So, you can select any of them by setting your investment goals.
Should you invest your hard earned money in MGK or QQQ?
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