S&P 500 Surge: Exploring ETF Performance in 2024

The S&P 500 has had remarkable success this year, with numerous leading growth and value stocks reaching record highs. However, exchange-traded funds (ETFs) that do not include high-performing names like Nvidia have struggled to match the S&P 500’s gains in 2024.

The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG), Vanguard S&P 500 Value ETF (NYSEMKT: VOOV), and Vanguard Energy ETF (NYSEMKT: VDE) have all lagged behind the S&P 500 this year. However, their quality holdings and fair valuations could set them up for a successful 2025.

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1. Vanguard Dividend Appreciation ETF

This fund stands out by combining both growth and value stocks. Unlike many dividend-focused funds, it tracks the S&P U.S. Dividend Growers Index. This index consists only of companies that have increased their dividends every year for at least a decade and filters out the top 25% of highest-yielding companies.

The fund’s leading investments include Apple, Broadcom, Microsoft, JPMorgan Chase, and ExxonMobil. While JPMorgan Chase and ExxonMobil provide solid yields, Apple, Broadcom, and Microsoft offer lower yields due to their strong stock price performance in recent years.

AAPL data by YCharts.

This ETF does not penalize companies for having lower yields resulting from their strong stock performance. Notably, Apple, Broadcom, and Microsoft are known for repurchasing significant amounts of their shares, which also benefits shareholders.

By investing in dividend-growth companies across various sectors, the Dividend Appreciation ETF avoids being overly focused on slow-growth industries. In contrast, many high-yield ETFs might include stocks with high yields that arise from price declines rather than substantial dividend increases.

Consider a scenario with two stocks both yielding 3%. If one stock triples in five years while the other’s value drops by half, the better-performing stock’s yield would fall to 1%, while the other’s would rise to 6%. This example highlights how a stock’s price can affect its yield and overall income potential.

This ETF appeals to investors who see passive income as a part of their investment strategy rather than its primary focus.

2. Vanguard S&P 500 Value ETF

With 437 total holdings, the Vanguard S&P 500 Value ETF keeps each holding outside its top 100 around 0.25% or lower. The top 10 holdings combined constitute less than 20% of the fund, preventing excessive bias towards any single stock.

Financials, healthcare, industrials, and consumer staples make up a large 63% of the fund, while only 17.5% is allocated to tech and related sectors. In comparison, the Vanguard S&P 500 ETF has approximately half its holdings in tech and discretionary sectors, driven by high-value companies like Nvidia, Microsoft, and Apple.

Because the Vanguard S&P 500 Value ETF avoids these leading growth stocks, it allows investors to trade some growth potential for a more reasonably priced investment with better yields. The Vanguard S&P 500 ETF has a price-to-earnings (P/E) ratio of 30.3 and a yield of 1.3%, while the Vanguard S&P 500 Value ETF boasts a P/E of 25.9 and a yield of 2%.

This ETF is ideal for those seeking less exposure to high-priced sectors alongside a better yield to enhance their passive income.

3. Vanguard Energy ETF

Designed to reflect the energy sector’s performance, the Vanguard Energy ETF has seen acceptable gains this year, though not on par with the broader S&P 500.

^SPX data by YCharts.

This ETF is somewhat top-heavy, with ExxonMobil and Chevron making up 36% of the total holdings. However, this concentration may mitigate risk due to the industry’s inherent volatility.

ExxonMobil and Chevron have robust balance sheets and diversified operations that extend beyond traditional oil and gas production. Both companies increasingly invest in low-carbon solutions, such as carbon capture and storage, enhancing value for shareholders through buybacks and rising dividends.

An appealing trait of the Vanguard Energy ETF is its low P/E ratio of 8.5 and an attractive yield of 3.3%. Oil and natural gas firms have demonstrated resilience, benefiting from industry-wide consolidation that has bolstered efficiency and earnings.

This sector often appears undervalued due to its vulnerability to downturns and capital demands, alongside threats from the clean energy transition. Nevertheless, these concerns may currently reflect in the valuations of these firms.

Investors can diversify risks within the energy sector through this ETF as they generate passive income while also taking advantage of the potential rise in oil and gas prices.

Being Mindful of Market Volatility

No one can predict the future movements of the S&P 500. Yet, history indicates that investing in high-quality companies at sensible prices has proven to be a solid long-term strategy. As of this writing, the S&P 500 has increased over 57% since the start of 2023, with growth-focused ETFs like the Vanguard Mega Cap Growth ETF more than doubling in value during the same timeframe.

As the broader market rally persists, growth-driven investments may face increasing pressure, leaving the path ahead uncertain.