The Concentration Spectrum: What VOO, VOOG, VONG, VGT, and SMH Reveal About Diversification

Every step toward higher historical returns has also been a step toward a narrower bet — and a deeper drawdown

Prepared by Richstorm.co

KEY TAKEAWAYS

• Moving from VOO to VOOG to VONG to VGT to SMH is a progression toward narrower bets on an ever-smaller group of technology and semiconductor companies.

• VONG carries the heaviest Magnificent Seven weighting of the three broad index funds, at roughly 52% of the portfolio, ahead of VOOG and VOO.

• VGT has outpaced VONG over the past decade largely because of a heavier NVIDIA weighting and the exclusion of slower-growing, non-technology sectors.

• SMH, a 26-stock semiconductor fund, has compounded faster than VGT over ten years but with a maximum drawdown nearly twice as deep.

• Risk-adjusted return measures have favored concentration too, though a single ratio cannot capture how painful a deep drawdown feels in real time.

The fund an investor can hold through a 50% drawdown without selling matters more than the fund with the highest historical return.Investors often think of index funds as a single category: “diversified.” In practice, the most popular large-cap U.S. equity funds sit along a spectrum — from broad market exposure to an increasingly narrow set of bets on the same handful of companies.

Lining up five widely held funds side by side — the Vanguard S&P 500 ETF (VOO), the Vanguard S&P 500 Growth ETF (VOOG), the Vanguard Russell 1000 Growth ETF (VONG), the Vanguard Information Technology ETF (VGT), and the VanEck Semiconductor ETF (SMH) — shows how that spectrum works, and what it costs.

The Spectrum at a Glance

*VGT and SMH are built by sector/revenue classification rather than Magnificent 7 weighting, though both hold several Magnificent 7 names — notably Nvidia, at roughly 19% of VGT and roughly 15–19% of SMH. Drawdown figures for VOO, VOOG, and VONG were not available from a single consistent source at time of writing.

The Broad Funds: VOO, VOOG, and VONG

VOO tracks the S&P 500 — roughly 500 of the largest U.S. companies across every sector. VOOG and VONG narrow that universe to the “growth” half of the S&P 500 and the Russell 1000, respectively, using index-provider methodologies that score companies on forecast earnings growth, sales growth, and valuation relative to book value.

The practical effect of that growth tilt is a much heavier weighting toward the so-called “Magnificent Seven” — Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta, and Tesla. Combined, those seven names make up roughly 34% of VOO, roughly 47% of VOOG, and roughly 52% of VONG. Of the three, VONG is the most concentrated in this group — slightly more so than VOOG, despite drawing from a broader 1,000-stock universe rather than the S&P 500's 500.

VGT: Doubling Down on the Winners

VGT takes a different cut entirely: rather than selecting by growth characteristics, it holds every company classified in the Information Technology sector — semiconductors, software, hardware, and IT services — regardless of growth or value scoring. The result is a fund of roughly 300 holdings that, in practice, ends up even more concentrated in the very largest names than VONG does. Nvidia alone is close to 19% of VGT, compared with roughly 13% in VONG; Apple is close to 15% versus roughly 11%.

That extra concentration in the largest semiconductor and hardware names — plus the absence of slower-growing sectors that VONG still holds, such as healthcare and financials — helps explain why VGT has compounded faster than VONG over the past decade: roughly 25% annualized for VGT versus roughly 18% for VONG. The difference is less about VGT finding different winners and more about holding more of the same ones.

SMH: The Purest Bet

The VanEck Semiconductor ETF (SMH) goes a step further still. It holds just 26 companies — the entire U.S.-listed semiconductor supply chain, from chip designers like Nvidia and AMD, to the dominant foundry (Taiwan Semiconductor), to the equipment makers that build the machines that build the chips (ASML, Applied Materials, Lam Research). There is no software, no hardware brands, no IT services — just semiconductors, top to bottom.

Over the past decade, SMH has compounded at roughly 36% annualized — well ahead of VGT's roughly 25%. But that extra return has come with a meaningfully higher price: SMH's maximum drawdown over its history has been close to 85%, compared with roughly 55% for VGT. An 85% drawdown requires a gain of more than 550% just to break even; a 55% drawdown requires roughly 120%. The recovery math gets dramatically harder at the extremes.

What the Risk-Adjusted Numbers Say

Sharpe ratio — a measure of return earned per unit of volatility — offers a more nuanced picture. Over an 11-year stretch from 2015 through 2025, VGT posted the best risk-adjusted return of any strategy examined, with a Sharpe ratio of 0.89, ahead of an equal-weighted Magnificent Seven portfolio (0.82, tied with VOO) and far ahead of bonds (essentially 0.00). A rough estimate for SMH over a comparable period lands somewhat higher still, in the neighborhood of 1.1 to 1.3.

In other words, concentration has not simply meant “more return for proportionally more risk” — on this measure, it has meant somewhat better-compensated risk. But Sharpe ratio is a single number built from volatility (the standard deviation of returns), and it does not fully capture the shape of that volatility. A fund that loses 85% of its value over eighteen months and then recovers is mathematically very different from a fund that loses 30% and recovers within months — even if their volatility statistics, and therefore their Sharpe ratios, end up similar.

The Real Tradeoff

Strip away the index-fund packaging, and the VOO-to-SMH progression is really a stock-picking spectrum in disguise. An index that holds 26 semiconductor companies selected by a revenue-based screen is making the same kind of concentrated bet a stock picker makes — it is simply rebalanced by a committee on a fixed schedule rather than by an individual investor's own judgment. The “passive investing” label provides comfort and the appearance of neutrality, but it does not change the underlying risk profile.

The honest framing for any investor moving along this spectrum is not “which fund has the best historical return,” but “which level of concentration — and which depth of drawdown — can I genuinely hold through without selling at the bottom?” Every step from VOO toward SMH has historically raised both numbers together. There is no point on this spectrum that offers the higher return without the deeper hole.