Five low-cost exchange-traded funds (ETFs) managed by Vanguard underwent stock splits on April 21, significantly impacting their accessibility for investors. Notably, Broadcom (NASDAQ: AVGO) emerged as one of the top 10 holdings in four of these five funds. The day following the stock splits, Broadcom reached an all-time high, coinciding with a broader stock market rally and positive news related to Alphabet.
Broadcom has recently expanded its collaboration with Alphabet’s Google Cloud, focusing on network observability through its AppNeta technology. In addition to this partnership, Google unveiled new Tensor Processing Unit (TPU) chips designed for artificial intelligence applications—namely, the TPU 8t for AI training and the TPU 8i for AI inference. Remarkably, Broadcom is now among just seven companies globally with a market capitalization exceeding $2 trillion, joining tech giants such as Nvidia, Alphabet, Apple, Microsoft, Amazon, and Taiwan Semiconductor Manufacturing Company.
The growth of Broadcom’s custom AI chips and its AI networking business is driving accelerating earnings growth. The company maintains a solid foundation through its established non-AI semiconductor and software infrastructure business, which generates consistent free cash flow, allowing for regular stock buybacks and a remarkable 15 consecutive years of dividend increases.
Many investors are drawn to Broadcom as a potential long-term investment, even at its current high valuation. For those looking to gain exposure to Broadcom while diversifying their portfolios, the recently split Vanguard ETFs present an attractive option.
Broadcom, as a megacap growth stock, is notably excluded from the Vanguard Mid-Cap ETF, which recently executed a 4-for-1 stock split. However, it is a core holding in several other Vanguard funds that have now become more accessible to investors post-split, with shares available for under $100 each.
The specific funds featuring Broadcom include:
- Vanguard S&P 500 Growth ETF (NYSEMKT: VOOG): 5.1% weighting, 0.07% expense ratio
- Vanguard Growth ETF (NYSEMKT: VUG): 4.4% weighting, 0.03% expense ratio
- Vanguard Mega Cap Growth ETF (NYSEMKT: MGK): 4.4% weighting, 0.05% expense ratio
- Vanguard Information Technology ETF (NYSEMKT: VGT): 4.4% weighting, 0.09% expense ratio
The expense ratios for all four of these funds are notably low, all under $1 for every $1,000 invested. Each fund has distinct characteristics worth noting. The Vanguard Information Technology ETF is recognized as the best-performing Vanguard ETF over the last decade, focusing exclusively on tech stocks including Broadcom, but it does not include other large-cap companies like Alphabet and Amazon. Conversely, the Mega Cap Growth ETF and the S&P 500 Growth ETF offer more diversified holdings, with the Mega Cap Growth ETF showing considerable concentration in just ten stocks, positively impacting its performance.
The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) presents an additional investment avenue that may be particularly appealing for those seeking balance. Broadcom stands out as the largest holding within this fund at 6.3%, despite the ETF being underweight in technology relative to the broader S&P 500 index. Currently, Broadcom’s yield is modest at 0.6%, reflecting a trend where the stock price’s increase has eclipsed dividend growth.
Stock splits, while not fundamentally altering the value of stocks, can increase affordability for investors, allowing them to buy full shares at a reduced price. However, it’s essential to note that a stock split alone does not inherently make a security a good buy. Research indicates mixed results regarding stock split performance.
Investors looking to incorporate Broadcom into a growth-focused portfolio may find the newly split Vanguard ETFs worth consideration. Alternatively, those interested in more passive income and better value might lean toward the Vanguard High Dividend Yield ETF. Before making an investment decision, potential Broadcom buyers should weigh the options available, including recent analyses that suggest other stocks might present more compelling investment opportunities at this time.
