3. Vanguard Mega Cap Growth Index Fund (NYSE:MGK)
5-Year Share Price Performance as of May 3: 111.43%
Vanguard Mega Cap Growth Index Fund (NYSE:MGK) aims to mirror the CRSP US Mega Cap Growth Index’s performance using a passively managed, full-replication strategy. It offers diversified exposure to the most prominent growth stocks in the American market. The fund was launched on December 17, 2007. As of March 31, 2024, Vanguard Mega Cap Growth Index Fund (NYSE:MGK)’s portfolio consists of 79 stocks, and the fund’s net assets stand at $19.1 billion. The ETF offers an expense ratio of 0.07%.
Tesla, Inc. (NASDAQ:TSLA) is one of the top holdings of Vanguard Mega Cap Growth Index Fund (NYSE:MGK). According to Insider Monkey’s fourth quarter database, 82 hedge funds were bullish on Tesla, Inc. (NASDAQ:TSLA), with Philippe Laffont’s Coatue Management being one of the top stakeholders, boasting a $1 billion stake.
Polen Focus Growth Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its first quarter 2024 investor letter:
“The 9% growth we estimate for the Index includes the hefty weightings in high-growth names like NVIDIA and Tesla, Inc. (NASDAQ:TSLA). Tesla’s narrative wasn’t just about being a great electric vehicle manufacturer. The way we see it, the narrative included Tesla becoming a fully autonomous fleet of electric vehicles (“Robotaxi”) soon, the charging platform for all E.V.s soon, an AI play, a global solar utility company soon, a future subscription business, and more. When we research Tesla, we see a differentiated auto business and the potential for many of these interesting “options” to be realized over a long enough period. However, the timing and true viability of many of these options are still unknown and often take much longer than many hope. To justify today’s valuation, even after the recent pullback, we see a company that needs to crack the mass market with a $25,000 or less model at acceptable margins. Yet, the company hasn’t articulated a clear path to getting there. Interest rates have risen, and competition in China has intensified, tempering demand for its existing, higher[1]priced cars. Valuation has become more difficult to justify at these levels. We feel the reality of these dynamics has finally started to settle into Tesla stock prices, and we look forward to seeing a more reasonable valuation that reflects the existing product portfolio and any future offerings that demonstrate a very clear path to near-term commercialization.
We aim to invest in what we view as more predictable, highly competitively advantaged growth businesses that can drive the earnings growth we require to deliver long-term returns in line with our long-term mid-teens track record. We do not want or need to make heroic assumptions. Even over the highly unusual last five years that featured lumpy returns from year to year, we delivered mid-teens annualized gross returns—right in line with our historical average—driven by over 20% portfolio weighted-average earnings per share growth. We calculate that the earnings growth of the Russell 1000 Growth Index has been less than half that of our Portfolio over the same period.
As noted, Apple and Tesla, which we do not own but are large Index weights, underperformed and were relative contributors to our performance. It seems possible that market participants are finally seeing the economic reality of those businesses versus the hopeful narratives.”
