It is not every time you get to compare two funds from the same issuer. But today, we will pitch two of Vanguard index funds against each other.
The Vanguard Growth Index Fund Admiral Shares (VIGAX) and the Vanguard 500 Index Fund Admiral Shares (VFIAX) are two mutual funds adopting two distinct investment strategies, thereby offering investors exposure to different market segments.
As always, this comprehensive review will help you get familiar with these funds and position you to choose which is better for your portfolio.
Before we get to the thick of the action, let’s look at the key takeaways from this article.
- VIGAX and VFIAX are two popular domestic index funds from the stables of Vanguard Investment Management Group.
- VIGAX offers exposure to large capitalization growth stocks, while VFIAX provides exposure to large capitalization blend stocks.
- Vanguard designed VIGAX to track the S&P 500 Index and VFIAX to track the CRSP US Large Cap Growth Index.
- VFIAX is bigger than VIGAX–it has 503 stocks and over $700 billion in total net assets compared to VIGAX’s 260 stocks and $134 billion in total net assets.
- While both are excellent Admiral Shares Funds with very low expense ratios, VFIAX is slightly cheaper.
- The broad diversification of VFIAX means investors can adopt it as a core equity holding in their portfolio.
- VGIAX’s focus on large-cap growth stocks means it may underperform the broader stock market.
VIGAX vs. VFIAX: Overview
We have two interesting mutual funds on our hands today, and here is an overview of each.
Vanguard launched this index fund under the large-cap growth category in November 2000. Twenty-two years later, it has grown into one of the most adopted funds for investors looking to put their money into stocks of large U.S. companies in market sectors with higher growth potential than the general market. It follows a passive (index-based) management style, tracking the CRSP US Large Cap Growth Index (more on that later). VIGAX has grown considerably since its inception. It currently has 260 stocks in its portfolio, including Apple, Microsoft, Amazon, Tesla, Meta, and others. The fund invests relatively more in Technology, Communication Services, and Consumer Cyclical Services.
Vanguard launched VFIAX at the same time as VIGAX, i.e., November 2000. It was the first index fund in the industry designed for individual investors. VFIAX offers investors low-cost access to broadly diversified exposure to the domestic equity market. As the name suggests, the fund invests in 500 of the largest U.S. companies spread across various industries and segments of the market. Among the over 500 stocks in VFIAX’s portfolio, notable mentions include Apple, Microsoft, Alphabet, Tesla, Amazon, and NVIDIA. The broad diversification of the 500 Index Fund within the large-cap market means investors can adopt the fund as a core equity holding in their portfolios.
VIGAX vs. VFIAX: Investment Methods
The biggest difference between VIGAX and VFIAX mutual funds is their investment strategies. While both funds adopt the passive index-based management style, the index tracked in each case is very different.
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Vanguard Growth Index Fund Admiral Shares (VIGAX) tracks the CRSP US Large Cap Growth Index. Unlike the total stock market index, this is a benchmark index that measures the investment return of large-cap growth stocks. This index fund is designed to follow a buy-and-hold approach, investing majorly in all of the stocks present in its underlying benchmark. The stocks covered in this index are more likely to grow faster than the general market. However, there is also an attendant risk of these growth stocks underperforming the general stock market.
On the other hand, Vanguard 500 Index Fund (VFIAX) seeks to track the performance of the S&P 500, a benchmark index that measures the performance of the Standard & Poor’s 500 index. The index is a popular benchmark of the U.S. stock market and comprises mainly stocks of large U.S. companies. VFIAX invests all or a substantial part of its assets in the stocks of this index. This move comes with the usual stock market risk and the investment style risk.
Holdings and Composition
VFIAX is bigger than VIGAX. The VFIAX portfolio comprises 503 stocks and over $700 billion in total net assets compared to VIGAX’s 260 stocks and $134billion in total net assets. The ten largest holdings in VGIAX represent 50.60% of the total net assets, while the ten largest holdings in VFIAX account for 28.10%. This reiterates our earlier submission that VFIAX is more diversified than VGIAX, with VGIAX clearly more overweight at the top.
In terms of equity sector diversification, both index funds invest in similar industry sectors but to different extents. For example, the most significant sectors in VGIAX are Technology (41.15%), Consumer Cyclical (17.95%), Communication Services (13.46%), and Health Care (7.98%). Similarly, VFIAX invests mainly in Technology (24.27%), followed by Health Care (15.24%), Financial Services (12.93%), and Consumer Cyclical (10.31%).
VIGAX vs. VFIAX: Fund’s Performance Comparison
Both VIGAX and VFIAX have performed impressively since their inception, as indicated by their average annual total returns (after taxes on distributions) and portfolio growth.
Average Annual Total Returns
VIGAX’s average annual total return since inception is 6.83%. In the last three, five, and ten years, the fund has returned 11.46%, 12.65%, and 13.57%, respectively. This is a decent performance by most standards.
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VFIAX is also not far behind. The fund has delivered an average annual total return of 6.48% since November 2000. The 10-year return is 12.42%, while the 5-year and 3-year returns are 10.80% and 10.14%, respectively.
Cumulative Portfolio Growth
VIGAX has grown cumulatively by 397.21% since its launch and 209.54% in the last ten years. Although it has struggled in the previous year, the 102.37% and 53.94% 5-year and 3-year total returns are definitely impressive numbers.
VFIAX is close with 362.61% total returns since inception. It grew by 263.06% in the last decade, 82.56% in the previous five years, and 45.53% in the last three years.
The numbers above have shown VIGAX to be the better performer in terms of investment returns, with only a slight edge over VIGAX.
VIGAX vs. VFIAX: Fees and Tax Efficiency
Both funds are relatively cheap–VIGAX’s expense ratio is 0.05%, 0.01% higher than VFIAX’s 0.04%. There are no purchase, redemption, or fund-specific fees associated with both mutual funds.
Consistent with the nature of index funds, investors can only buy into these funds if they can cough up a $3,000 minimum investment. The prices of each fund unit also differ – VFIAX costs about $400 compared to VIGAX’s price of about $150.
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VIGAX vs. VFIAX: Volatility and Risk
There is little to separate these index funds in terms of risks and volatility.
In addition to the general stock market volatility, VIGAX is exposed to an additional primary risk factor that comes from focusing only on large cap stocks of the growth category, which may sometimes underperform the overall stock market.
VFIAX is also not immune to the general volatility of the stock market. However, it is less volatile due to the broad diversification of the 500 Index Fund within the large-cap market.
VIGAX vs. VFIAX: ESG Ratings
Both funds will hold it down in the face of risks emanating from environmental, social, and governance matters. 31% of VIGAX’s holdings are rated AAA or AA (ESG leaders) by the MSCI. This shows that the fund has fairly strong environmental, social, and governance characteristics. 30% of VFIAX’s holdings receive an MSCI ESG rating of AAA or AA, with only 2% falling into the laggards category.
So far, we have established both the Vanguard Growth Index Fund Admiral Shares (VIGAX) and the Vanguard 500 Index Fund Admiral Shares (VFIAX) to be solid index funds. Their popularity is strongly backed by numbers, with both admiral shares funds turning out to be decent historical performers and with very low expense ratio.
Which is Better: VIGAX or VFIAX?
The first metric to consider when trying to choose the better option between VIGAX and VFIAX is your investment goals. Investors can efficiently expose their portfolios to large-cap blend stocks with VFIAX and large-cap growth stocks with VIGAX, all at relatively low expense ratios. VFIAX brings a broader diversification to the table, making it the right choice if your priority is to make your portfolio more diversified. However, if your portfolio could use some volatility and risk, then you can throw in some growth stocks by investing in VIGAX.
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Choosing either of these Vanguard funds is a good investment option as their past performance has shown, especially for those in the long term investment horizon. You can maximize your potential returns in either case by investing earlier rather than later. If you are somewhat short of the $3,000 minimum initial investment budget, you can consider the exchange-traded funds (ETFs) equivalent of these funds. The ETF equivalent of VIGAX is the Vanguard Growth ETF (VUG), while the ETF equivalent for VFIAX is the Vanguard 500 Index Fund (VOO). Both ETFs have a starting price of one share.
If you enjoy this, you can check out other interesting index fund reviews from our stables.