Prediction: This Unstoppable Vanguard ETF Will Beat the S&P 500 Again in 2025


The S&P 500 (SNPINDEX: ^GSPC) index is in a raging bull market, and it has generated a 21.9% return this year — more than twice its average annual return dating back to 1957.

However, the Vanguard Growth ETF (NYSEMKT: VUG) is doing even better with a year-to-date gain of 23.9%. This exchange-traded fund (ETF) has also outperformed the S&P 500 each year, on average, for the last two decades.

That’s because the Vanguard ETF holds some of the best-performing stocks from the S&P 500 — like Nvidia — with a much higher weighting, which magnifies its overall returns.

The technology sector is likely to continue driving the broader stock market higher in 2025 thanks to trends like artificial intelligence (AI), so here’s why I predict the Vanguard ETF will beat the S&P 500 yet again next year.

A golden bull figurine on top of a strip of money.
Image source: Getty Images.

The Vanguard ETF invests exclusively in U.S. large-cap companies. It holds 183 stocks from 12 different sectors of the economy, but a whopping 57.7% of the value of its portfolio is occupied by the technology sector.

That means the ETF isn’t as diversified as the S&P 500, which features 500 different companies and a tech-sector weighting of just 31.7%.

Each of the top three holdings in the Vanguard ETF are technology stocks, and they account for almost one-third of the entire value of its portfolio on their own. Amazon (which is in the consumer discretionary sector) and Meta Platforms (which is in the communication services sector) round out the ETF’s top five positions. The below table displays their individual weightings relative to the S&P 500:

Stock

Vanguard ETF Portfolio Weighting

S&P 500 Weighting

1. Apple

12.05%

7.25%

2. Microsoft

11.41%

6.55%

3. Nvidia

9.99%

6.11%

4. Amazon

5.99%

3.56%

5. Meta Platforms

4.73%

2.56%

Data source: Vanguard. Portfolio weightings are accurate as of Sept. 30, 2024, and are subject to change.

Those five stocks have generated an average return of 60.1% in 2024 so far, and since the Vanguard ETF holds them in a much higher weighting than does the S&P 500, that explains its outperformance this year:

NVDA Total Return Level Chart
NVDA Total Return Level Chart

All five of the above companies are at the forefront of the AI revolution, and considering this emerging industry could add anywhere from $7 trillion to $200 trillion to the global economy in the coming decade (depending which Wall Street forecast you rely upon), they could remain a critical source of returns for the S&P 500 and the Vanguard ETF.



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