THE S&P500 has generated a return of round 23% in 2024, greater than double its common annual acquire of 10.6% since its inception in 1957. Nonetheless, had you invested within the Vanguard S&P 500 Progress ETF(NYSEMKT:VOOG)as an alternative you’ll have gotten a whopping 38% return. This exchange-traded fund (ETF) instantly tracks the efficiency of the Progress of the S&P 500 index, which holds solely 233 of the top-performing progress shares within the common index S&P500 and ignore the remainder.
In different phrases, it assigns a lot larger weightings to sharply rising shares like Nvidiawhich led to higher general returns. Excessive-growth tendencies like synthetic intelligence (AI) are getting into 2025 with a variety of momentum, and I predict the Vanguard S&P 500 Progress ETF will crush the S&P 500 once more this yr.
Picture supply: Getty Photos.
THE Progress of the S&P 500 The index selects its shares primarily based on elements corresponding to their momentum and the gross sales progress of the underlying corporations. Under is a chart of the highest 5 positions within the index (and by extension, the Vanguard S&P 500 Progress). ETFs), and their returns over the past 12 months:
As you may see, all however one generated a greater acquire than the S&P 500. Provided that the Vanguard ETF assigns every of those a a lot larger weighting than the S&P 500, the ETF’s outperformance over the previous yr isn’t any shock:
Information supply: Vanguard. Desk by creator. Portfolio weightings are correct as of November 30, 2024 and are topic to vary.
The knowledge know-how sector has a weighting of 49.1% within the Vanguard ETF, whereas its weighting within the S&P 500 is barely 31.3%. The highest three shares within the desk above are the one ones on the planet with a market capitalization of $3 trillion or extra, and every of them is within the data know-how sector.
The brand new yr could possibly be the most important for AI but, which means know-how will seemingly stay the Vanguard ETF’s dominant sector. In keeping with Morgan Stanley4 corporations alone: Microsoft, Amazon, Meta and Alphabet – might spend a complete of $300 billion on AI chips and infrastructure this yr.
This could profit Nvidia, which is the biggest supplier of AI graphics processing items (GPUs) for information facilities. Nonetheless, the bills may even be handed on to different corporations within the Vanguard ETF, corresponding to Broadcom, Superior microdevicesAnd Texas Devices.
However the ETF shouldn’t be totally about know-how. He additionally owns important shares of different sectors, together with the pharmaceutical big. Elie Lillyretail big Costco wholesaleand the quick meals titan McDonald’s.
This Vanguard ETF has generated a compound annual return of 16.4% since its inception in 2010, which is comfortably larger than the S&P 500’s common annual acquire of 14.1% over the identical interval. This distinction of two.3 proportion factors annually could not look like a lot, however it had a huge impact in greenback phrases because of capitalization results:
Beginning stability (2010)
Compound Annual Return
Steadiness at finish of 2024
$50,000
16.4% (Vanguard ETF)
$419,094
$50,000
14.1% (S&P 500)
$316,934
Chart and calculations by creator.
As I identified on the prime, the Vanguard ETF is up 38% in 2024, representing a fair greater hole to the S&P 500, in comparison with the historic common highlighted above. In different phrases, if AI shares like Nvidia proceed to steer the market larger in 2025, the ETF is more likely to outperform the S&P as soon as once more.
However, the Vanguard Progress ETF might quickly underperform if inventory markets fall or following an financial shock. Excessive-flying progress shares are inclined to fall extra sharply in these eventualities, as buyers flock to the perceived security of dividend shares as an alternative. This may present some assist to the S&P 500, whereas the S&P 500 Progress Index has much less publicity to those safer shares.
Since there aren’t any indicators of an impending detrimental occasion on the horizon at the moment, I consider the Vanguard S&P 500 Progress ETF is poised for an additional robust yr in 2025.
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Suzanne Frey, an govt at Alphabet, is a member of the board of administrators of The Motley Idiot. John Mackey, former CEO of Entire Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Randi Zuckerberg, former director of market growth and spokesperson for Fb and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of administrators. Anthony DiPizio has no place in any of the shares talked about. The Motley Idiot holds positions and recommends Superior Micro Units, Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, and Texas Devices. The Motley Idiot recommends Broadcom and recommends the next choices: lengthy January 2026 $395 calls on Microsoft and brief January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
