Daniel Foelber, The Motley Fool
6 min read
As of July 31, the Vanguard Russell 1000 Growth ETF (NASDAQ: VONG) has a whopping 14.6% weighting in Nvidia (NASDAQ: NVDA) — far ahead of the 7.6% weighing in the Vanguard S&P 500 ETF (NYSEMKT: VOO). The Vanguard Russell 1000 Growth ETF is based on the Russell 1000 Growth Index, which uses unique methodologies that overweight stocks it deems pure-play growth names (like Nvidia). But that classification may not last.
Here’s the surprising reason Nvidia is evolving into a dividend growth stock, which could land it a spot in the Vanguard Russell 1000 Value ETF (NASDAQ: VONV), and why the ETF is one of the best buys for value investors.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Not your typical value index
The London Stock Exchange Group (LSEG) runs the Russell 1000 index, which is the 1,000 largest U.S.-listed stocks by market cap. Earlier this year, the firm shifted its reconstitution period from annual to semiannual. The next index shake-up will take effect in December. I expect Nvidia’s weighting to be split between the Vanguard Russell 1000 Growth Index and the Vanguard Russell 1000 Value Index, rather than being solely in the Vanguard Russell 1000 Growth Index.
Like the S&P 500 (SNPINDEX: ^GSPC), the Russell 1000’s market cap is heavily concentrated in growth stocks. But LSEG aims to split the Russell 1000 evenly between the Growth Index and Value Index. To compensate for growth stocks being collectively more valuable than value stocks, the index allocates the market cap of stocks like Apple and Microsoft between the two indexes rather than solely to the Growth Index.
For comparison, popular low-cost ETFs like the Vanguard Morningstar Growth ETF (NYSEMKT: VUG) and the Vanguard Morningstar Value ETF (NYSEMKT: VTV) use an all-or-nothing approach. The Vanguard Growth ETF holds Nvidia, Alphabet, Apple, Microsoft, Amazon, Broadcom, Tesla, Meta Platforms, and Micron Technology, while the Vanguard Value ETF doesn’t hold any of those stocks. Whereas the Vanguard Russell 1000 Growth ETF and the Vanguard Russell 1000 Value ETF have more crossover.
This crossover can be seen by the number of components in both ETFs. Instead of the combined ETFs having 1,000 components as you may expect — the Vanguard Russell 1000 Growth ETF has 370 companies compared to 872 in the Vanguard Russell 1000 Value ETF — showcasing the significant overlap with a combined 1,242 components.
