The S&P500 (SNPINDEX: ^GSPC) is having a very strong year, with a gain of 27.3% year to date. That’s more than twice the average annual return going back to 1957.
However, the Vanguard Growth ETF (NYSEMKT: VUG) performing even better, with a gain of 30.9% since the beginning of the year. That’s because technology stocks are leading the S&P higher in 2024 thanks to trends like artificial intelligence (AI), and this Vanguard exchange-traded fund (ETF) gives them a much higher weighting.
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The Vanguard ETF has a strong track record of outperforming the S&P 500, beating the index every year (on average) since its inception in 2004.
The technology sector will likely continue to lead the broader market higher. That’s why I predict the Vanguard ETF will beat the S&P 500 again in 2025.
The vanguard ETF invests exclusively in American large-cap growth companies. It owns 182 stocks from 12 different sectors, but the technology sector represents by far the largest part of its portfolio, with a 58% weighting.
By comparison, the S&P 500 is home to 500 different companies, and the technology sector accounts for 31.7% of its portfolio. That means the Vanguard ETF is much more concentrated, which can lead to additional risk during periods when technology stocks are underperforming.
The top three holdings in the Vanguard ETF are in the technology sector and alone account for over a third of the value of the entire portfolio. The top five holding companies are rounded off with Amazon (which is in the consumer durables sector) and Metaplatforms (in the communications services sector). Their individual weightings relative to the S&P 500 are below:
|
Stock |
Vanguard ETF Weighting |
S&P 500 weighting |
|---|---|---|
|
1. Apple |
11.71% |
7.11% |
|
2. Nvidia |
10.94% |
6.76% |
|
3. Microsoft |
10.80% |
6.26% |
|
4. Amazon |
6.00% |
3.61% |
|
5. Metaplatforms |
4.70% |
2.57% |
Data source: Vanguard. Portfolio weights are accurate as of October 31, 2024 and are subject to change.
These five companies are at the forefront of the AI revolution, dominating both the hardware and software sides of this emerging industry. Their stocks have delivered an average return of nearly 61% through 2024, led by Nvidiawhich is up 173% thanks to incredible demand for its AI data center chips:
Because the Vanguard ETF assigns a higher weighting to these five stocks than the S&P 500, it’s no surprise that it has delivered better returns in 2024.