Over the past decade-plus, growth stocks have been largely responsible for leading the major U.S. stock market indexes to new heights. Growth-driven exchange-traded funds (ETFs) -- like the Vanguard Growth ETF (VUG -5.99%) -- have significantly outperformed the S&P 500. With just a 0.04% expense ratio, the Vanguard Growth ETF is a great way to achieve exposure without racking up high fees.

The Vanguard Growth ETF made an all-time high in December and nearly broke through to a new high in February. But a lot has changed in less than two months. Now, the Vanguard Growth ETF is down a staggering 22% from its all-time high -- which is worse than the S&P 500's 17% drawdown.

Here's what it would take for the ETF to recover and whether the fund is worth buying now.

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Leading (or lagging) from the top

Companies like Apple, Microsoft, and Nvidia have gotten so big that they have a big impact on the S&P 500. The tech sector alone makes up nearly 30% of the S&P 500. Throw in the communication sector -- which includes many tech-focused companies like Alphabet, Meta Platforms, and Netflix -- and the consumer discretionary sector -- led by Amazon and Tesla -- and those three sectors make up a combined 49% of the S&P 500.

The Vanguard Growth ETF takes it a step further by doubling down on tech-focused companies and underweighting stodgier sectors like financials and consumer staples.

Data source: Vanguard.

Betting big on growth-focused sectors has been a winning long-term strategy. A company that can efficiently pour profits back into the business and has clear ways to put capital to work can accelerate earnings growth faster than a company with limited opportunities or that returns the majority of profits to shareholders through buybacks and dividends.

However, growth companies can be vulnerable to economic downturns.

Ripple effects

Take a company like Nvidia, which makes up over 10% of the Vanguard Growth ETF. Nvidia's profits have soared due to surging demand for its graphics processing units (GPUs). These advanced GPUs are used in data centers to power increasingly complex artificial intelligence (AI) models. Nvidia's largest customers are big tech companies like Alphabet, Amazon, Microsoft, and Meta Platforms that operate massive data centers to support cloud infrastructure.

As demand grows, these customers have ordered more Nvidia GPUs, which Nvidia can charge top dollar for because of its lead over the competition. But there's a ripple effect when orders slow.

For example, let's say Meta Platforms experiences lower advertising revenue because of an economic slowdown. Or demand for cloud services provided by Amazon Web Services decreases because its customers aren't growing as quickly. If enough big customers pull back at once, it could really throw a wrench in Nvidia's near-term outlook.

A staggering 56% of the Vanguard Growth ETF is invested in Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, Tesla, and Broadcom. These companies have exposure to broader economic growth, AI, and enterprise and consumer spending. These companies can contribute epic gains for the Vanguard Growth ETF when the economy is booming.

But when there's a tech-driven downturn, like we saw in 2022, these same companies can drag the Vanguard Growth ETF lower. In 2022, the S&P 500 fell 19.4%, while the Vanguard Growth ETF lost around a third of its value.

A double-edged sword

Given the outsized exposure to technology, communications, and consumer discretionary, it would be very difficult for the Vanguard Growth ETF to reach a new all-time high until its largest holdings recover.

Buying the Vanguard Growth ETF is a bet on the ability of these companies to endure a slowdown. If tariffs last, they will undoubtedly face lower earnings due to higher costs and a demand slowdown. However, many top tech companies have more cash, cash equivalents, and marketable securities than debt on their balance sheets -- giving them a cushion for enduring economic uncertainty.

They may make less profit during a slowdown, but they are still cash cows. In contrast, capital-intensive businesses with high fixed costs and low margins could lose money in an environment of prolonged tariffs.

At times like this, it's important to separate companies from their stock prices. The top holdings in the Vanguard Growth ETF have seen their stock prices tumble in recent weeks, but these companies are some of the best-positioned in the world to ride out tariffs.

It may take time for the ETF to recover, so investors shouldn't anchor to the high from a few months ago. But if you have a high risk tolerance and a long-term time horizon, buying shares in financially strong, industry-leading companies could be a brilliant move.