VOOG

Overview

Vanguard S&P 500 Growth ETF (VOOG) tracks the S&P 500 Growth index and holds its constituents directly, a physical replication managed by Vanguard. Dividends are paid out to holders rather than reinvested, so VOOG suits investors seeking regular income. The fund is domiciled in US, which determines the withholding tax treatment applied to its dividends. Annual charges come to 0.10% of assets, and the fund holds 27.8B under management. Over five years the fund returned 12.2% a year on average, against 27.0% over three years. It is not eligible for the French PEA, but can be held in a securities account, a UK ISA or a German Depot. Its risk level is rated medium. Launched on 2010-09-07, the fund is denominated in USD and has 16 years of track record. Because VOOG distributes, every payment is taxable in the year it is received, against the dividend allowance in a general account, while it stays sheltered inside an ISA or a SIPP. Domicile in US sets the withholding the fund itself suffers on the dividends it receives, a cost absent from the stated fee but present in the return.

Ongoing charges of 0.10% place this fund 54th of 225 comparable funds, whose median is 0.20%. On £10,000 that costs about 10 a year and 100 over ten years at a constant amount, deducted daily and never visible on a statement: it shows up in the gap between the fund's return and its index's. At this level, neither low enough to be an argument nor high enough to be an obstacle, the decision rests elsewhere: on the index tracked, on the distribution policy, and on what your broker charges to buy.

Replication is physical: the fund actually holds the constituents of S&P 500 Growth, which makes its contents verifiable line by line in the issuer's report. Two points deserve attention. Securities lending first, practised by most physical funds to reduce costs: it earns a few hundredths of a point and creates an exposure to the borrower, covered by collateral, with the annual report stating the proportion lent. Rebalancing second: every change in the index's composition forces the fund to buy and sell, and those internal costs are not in the 0.10% headline. That is why two funds at the same price do not track their index with the same fidelity.

The fund is domiciled in the United States, and for a European investor that is the point to settle before any other. A US fund is outside UCITS regulation: most European brokers cannot offer it to a retail client for want of a key information document, so access depends on the investor's status. Two tax consequences follow as well: dividends paid to a non-resident bear US withholding, reduced by treaty where a W-8BEN is in place, and US securities held directly fall within US estate tax above a threshold that is low for a non-resident. An Irish-domiciled equivalent avoids both questions.

Income is distributed: the fund pays out the dividends it receives, usually one to four times a year. For a holder living off the portfolio that is what is wanted, since the income arrives without selling. For someone still accumulating it is a tax disadvantage in a taxable account: each payment is taxed in the year received, so the amount reinvested is reduced before it starts working again. Reinvesting by hand also costs a dealing commission each time and often leaves cash idle for want of the price of a whole unit. An accumulating class on the same index, where one exists, settles the question.

With 27.8 billion in assets and 16 years of history, this fund has the size and the record that make closure unlikely and the spread narrow. Three checks remain, once a year, none of which depends on the market. The ongoing charge, which an issuer revises without notice and whose gap to a competitor can invert. The tracking difference, the only figure that says whether replication stays faithful. And the methodology of S&P 500 Growth, which can change its selection or weighting rules without the fund's name moving, in which case what you hold has changed with nothing to announce it.

S&P 500 Growth keeps the companies whose results grow fastest, or whose price does, depending on the variant. The first effect is concentration: recent winners weigh heavily, and the fund ends up more concentrated than its starting universe. The second is greater sensitivity to interest rates than a broad index, because the value of distant growth depends on the rate at which it is discounted. A momentum screen also carries turnover costs the ongoing charge does not show, since it buys and sells at every rebalancing.

Over one year the fund shows 13.3% and over five years 12.2% annualised, two figures close together, which is the most ordinary and least informative configuration: it does not say the fund is steady, only that the chosen start and end points resemble each other. Comparing these figures with another fund means something only if the index is the same; otherwise it is an index comparison dressed as a fund comparison.

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