ETF of the Week: Vanguard Mega Cap Growth ETF

MGK crossed above its 200-day moving average about a month ago and has rallied more than 6% in the past couple of weeks. As markets recover and inflation subsides, MGK is an opportunity for investors to have a handful of horses in the stable that are poised to do really well during good times, Lydon said.

“We know coming out of the financial crisis that it was really tough over the next 10 years to beat the S&P 500. And if you go back and analyze that, even though there are almost 500 stocks there, most of the growth came from the mega cap companies,” Lydon stated. “But the last couple years, they haven’t performed as well as other areas of the market.”

However, most recently, off the low that mega caps saw in the fall, some of those names have been strong outliers and have rebounded, Lydon remarked. Part of this can be attributed to wide moats, strong cash flow, and the profitability of the companies.

“If you’re feeling better about the markets these days, whether it’s that you’re more confident the Fed’s doing its job, you feel like we’re not going to have a recession, you feel like employment’s under control, these companies are coming back, and some of them are outperforming the general markets again,” Lydon said.

MGK is a strong offering as it provides exposure to mega-cap names for just 7 basis points, eliminating the need for investors to pick individual stocks – something that most investors are not good at, Lydon noted.

“If you’re a trend follower, and you’re agnostic as far as the feeling about it, and you want to follow some good companies, this is a great opportunity,” Lydon said. “The worst that can happen is as soon as you buy it, markets pullback, this goes below its 200-day average, you sell with a small loss.”

“But more importantly than ever, I think what we’re seeing not just from advisors, but individual investors, there’s a lot of uncertainty out there,” Lydon added. “You don’t want to find yourself scrambling after the market has already recovered to put money in. So, here’s an opportunity very easily to get a little bit more equity exposure in really good companies, but you’re protecting your downside by watching that 200-day average.”

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