MGK: Focus On Forward Earnings Makes It Structurally Active

seekingalpha08-28

Vanguard Mega Cap Growth Index Fund ETF Shares consistently outperforms the S&P 500 but not Nasdaq.The Index methodology incorporates forward EPS growth estimates in the stock selection process, which...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nMGK: Focus On Forward Earnings Makes It Structurally Active\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-28 14:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4717509-mgk-focus-on-forward-earnings-makes-it-structurally-active><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Vanguard Mega Cap Growth Index Fund ETF Shares consistently outperforms the S&P 500 but not Nasdaq.The Index methodology incorporates forward EPS growth estimates in the stock selection process, which...</p>\n\n<a href=\"https://seekingalpha.com/article/4717509-mgk-focus-on-forward-earnings-makes-it-structurally-active\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"FORD","symbol_name":"福沃德工业","start_time":0,"source_url":"https://seekingalpha.com/article/4717509-mgk-focus-on-forward-earnings-makes-it-structurally-active","article_id":"2462485642","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/519516939/image_519516939.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2462485642","pubTimestamp":1724826305,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Vanguard Mega Cap Growth Index Fund ETF Shares consistently outperforms the S&P 500 but not Nasdaq.The Index methodology incorporates forward EPS growth estimates in the stock selection process, which","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"FORD":"福沃德工业","MGK":"Vanguard Mega Cap Growth ETF"},"translate_title":"MGK：关注远期收益使其结构活跃","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FORD":1,"MGK":1},"content_text":"Vanguard Mega Cap Growth Index Fund ETF Shares consistently outperforms the S&P 500 but not Nasdaq.The Index methodology incorporates forward EPS growth estimates in the stock selection process, which makes this ETF more active vs passive.Analyst consensus suggests a 10% upside potential for the portfolio, with EPS growth of 16% valued at 25x PE on 2025 estimates.   Colin Anderson Productions pty ltd Introduction I have read/spoken with many investors that have developed a certain disdain for mega cap stocks, it's akin to an anti-establishment posture. The investment rationale for a negative view on very large stocks is that they are slower growing and expensive and smother or dominate the main indexes, not allowing faster growth stocks to gain exposure etc. Thus, I analyzed the Vanguard Mega Cap Growth Index Fund ETF Shares (NYSEARCA:MGK) to confirm or dispel this anti-mega cap view. The results suggest that a concentrated portfolio of the largest companies (by market cap) with a strong tilt to earnings growth (past and future) has been able to consistently beat the S&P 500 (SPX) but lagged the more tech-heavy Nasdaq (NDX). Thus, it may be fair to conclude that, at least since the ETF's inception, the key has been maintaining a concentration in large-cap technology-oriented companies. Performance The MGK was launched in December 2007, not the best timing, but it certainly was a good test for the index methodology. The ETF has consistently outperformed the SPX, as illustrated in the charts below, with a margin of 2x on average since inception. However, MGK has not beaten the NDX, in this sample, only the Vanguard Information Technology Index Fund ETF Shares (VGT) has had that honor while The Technology Select Sector SPDR® Fund ETF (XLK) is a solid runner-up. I also compared MGK to the equally weighted S&P 500 represented by the Invesco S&P 500® Equal Weight (RSP), the Invesco S&P 500® Equal Weight Technology ETF (RSPT), and the First Trust NASDAQ-100 Equal Weighted Index Fund ETF (QQEW) to see if a broader exposure to supposedly faster growth and or less expensive stocks made a difference. The result suggests that the mega caps earn their status and do not crowd out small companies from the major indexes. The index weights are predominately driven by the earnings power of the constituents, and investors are rewarded by this discrimination or market selection.   Created by author with data from Capital IQ  Created by author with data from Capital IQ Index Methodology This index stock selection method is what I would call structurally active. The S&P index requires positive EPS in the last 12 months but does not factor in forward EPS growth and is considered a passive or backward-looking investment method that relies on the market to bid up stock prices and market caps, which results in larger index weighting. Thus, MGK is active in that it uses consensus or projected EPS growth to select stocks from a large-cap universe. MGK tracks the CRSP US Mega Growth Cap Index (Center for Research in Security Prices and affiliate of the University of Chicago) that utilizes a somewhat complex series of EPS growth factors to rate stocks. The result is a concentrated portfolio of large-cap companies that have higher projected earnings growth, which in the last 20 years has been dominated by the technology sector. If the technology sector eventually begins to mature, the ETF should transition the stock selection to whatever large companies are growing faster.   CRSPCRSP Consensus Upside MGK has 70 stocks in the portfolio, of which I gathered consensus estimates for 23 stocks that represent 79% of AUM, which is a statistically high enough concentration to reach conclusions. I used consensus price targets to calculate a weighted portfolio upside potential of 10%, which is broadly in line with the SPX and slightly lower than the NDX. There are several stocks that drag down the upside potential, according to analyst consensus. The largest is Apple (AAPL) followed by Eli Lilly (LLY) with under 4% upside and Tesla (TSLA) with -3%. Analysts can and have been wrong, but their valuations are mostly fundamentally based and thus divergence requires an upgrade in earnings expectations.   Consensus Price Target (Created by author with data from Capital IQ) Revenue Growth While the ETF and Index have an earnings growth focus, companies generally need to see sales or revenue accelerate and or margins to increase to drive that EPS growth. The consensus estimates revenue may increase by 13% and 10% for 2025-2026, with margins expanding 100 basis points per year that combine to grow EPS. Consensus Revenue Growth (Created by author with data from Capital IQ) Earnings Growth and Valuation The ETF has a 36% EPS growth forecast for this year driven by NVIDIA (NVDA) and LLY outsized results as well as several others. The 2025 and 2026 EPS estimates moderate to 16%, which is high and validates the index methodology. This growth is valued at 25x PE on 2025 estimates, which may appear high but is relatively low at a 1.6 x PEG ratio and in line with the SPX and NDX.   Consensus EPS Growth & Valuation (Created by author with data from Capital IQ) Risk MGK has concentration risk that if the top-weighted stocks suffer earnings disappointments, it may underperform the market. Since the index utilizes forward EPS estimates to select stocks, analyst errors may also play a risk factor. Conclusion  I rate the MGK a buy. Despite the mega-cap concentration risk, it seems the index methodology that incorporates forward EPS growth estimates has proven to consistently beat the S&P 500. Investors looking to beat the NDX may need to add further tech sector concentration.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2462485642"}