Stock Surge: Vanguard S&P 500 Growth ETF Outshines the S&P 500
The stock market has had a remarkable year, with the benchmark S&P 500 rising 29%, nearly triple its average annual gain since 1957.
Investors in the Vanguard S&P 500 Growth ETF (NYSEMKT: VOOG) have seen an even bigger rise of 38% in 2024. This ETF closely mirrors the performance of the S&P 500 Growth Index, focusing only on the top-performing stocks of the S&P 500.
This focus on growth means that high-performing companies like Nvidia are weighted more heavily, leading to potentially better returns. Here’s why I believe the Vanguard S&P 500 Growth ETF will continue to outperform the S&P 500 in 2025.
Image source: Getty Images.
Tech Giants Lead the Vanguard ETF
The S&P 500 Growth Index includes about 233 stocks from the S&P 500, selected based on their sales growth and overall market momentum. A case in point is Nvidia, which has surged nearly 200% in 2024 and is projected to grow its revenue by 111% this fiscal year.
Technology stocks are experiencing a significant boost, largely fueled by advancements in artificial intelligence (AI). Currently, tech companies make up 49.7% of the Growth Index, in stark contrast to their 31.7% share in the S&P 500.
The top three holdings in the Vanguard S&P 500 Growth ETF are all tech stocks, comprising 35.3% of the ETF’s total value. The top five also include Amazon and Meta Platforms from the consumer discretionary and communication services sectors, respectively.
|
Stock |
Vanguard ETF Weighting |
S&P 500 Weighting |
|---|---|---|
|
1. Apple |
12.48% |
7.11% |
|
2. Nvidia |
11.87% |
6.76% |
|
3. Microsoft |
10.98% |
6.26% |
|
4. Amazon |
6.33% |
3.61% |
|
5. Meta Platforms |
4.51% |
2.57% |
Data source: Vanguard. Portfolio weightings are accurate as of Oct. 31, 2024, and are subject to change.
The above-mentioned stocks have achieved an average return of 70.8% this year. Their higher weight in the Vanguard S&P 500 Growth ETF explains why it is outperforming its benchmark.
NVDA data by YCharts.
Nvidia remains a leader in supplying graphics processing units (GPUs) crucial for AI development. The company has just begun to ship its state-of-the-art Blackwell chips, reinforcing its position for a successful 2025.
Apple is also set for a robust year with its rollout of the new Apple Intelligence software across various devices, which utilizes AI tools to enhance user experiences, including updates to Siri through OpenAI’s ChatGPT technology.
Microsoft and Amazon are poised to ramp up data center construction to meet the surging demand for AI capabilities. Likewise, Meta Platforms is preparing to launch its advanced Llama 4 large language model in 2025.
Vanguard ETF’s Future Performance Outlook
The Vanguard S&P 500 Growth ETF has consistently outperformed the S&P 500, with a compound annual return of 16.4% since inception in 2010, compared to the 13.7% average annual return of the S&P 500 during the same timeframe.
Even a slight margin, like 2.7 percentage points, can lead to significant gains due to the power of compounding.
|
Starting Balance (2010) |
Compound Annual Return |
Balance In 2024 |
|
|---|---|---|---|
|
Vanguard S&P 500 Growth ETF |
$10,000 |
16.4% |
$83,818 |
|
S&P 500 |
$10,000 |
13.7% |
$60,345 |
Calculations by author.
Given the favorable conditions surrounding AI, it seems highly likely that the leading stocks in the Vanguard ETF will continue their strong performance into 2025. Thus, it may very well keep outperforming the S&P 500.
However, in the event of a market downturn, the high-flying tech stocks might experience a sharper decline compared to the broader S&P 500. In such scenarios, dividend stocks could outperform and support the S&P 500, while the Vanguard S&P 500 Growth ETF may have less involvement with these more stable investments.
The charts below illustrate that the S&P 500 High Dividend Index has seldom matched the performance of the Vanguard S&P 500 Growth ETF over the past decade.
VOOG data by YCharts.
Consequently, the Vanguard S&P 500 Growth ETF appears positioned to outperform the S&P 500 once more in 2025.
Is Investing $1,000 in Vanguard S&P 500 Growth ETF Right for You?
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John Mackey, former CEO of Whole Foods Market (an Amazon subsidiary), serves on The Motley Fool’s board. Randi Zuckerberg, former director of market development and spokeswoman for Facebook (sister of Meta Platforms CEO Mark Zuckerberg), is also a board member. Anthony Di Pizio has no position in any mentioned stocks. The Motley Fool holds positions in and recommends Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool also recommends long January 2026 $395 calls and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
