As the financial world anticipates another strong year for the stock market in 2025, one exchange-traded fund (ETF) is gaining significant attention for its impressive performance: the Vanguard S&P 500 Growth ETF. This ETF, which only includes the best-performing stocks from the broader S&P 500 index, has consistently outpaced its parent index and is poised to continue this trend into the new year.
Focusing on the Best of the S&P 500
The S&P 500 is widely regarded as a benchmark for U.S. equities, featuring 500 of the highest-quality companies with strict criteria for inclusion. To be eligible, companies must have a market capitalization of at least $18 billion and demonstrate consistent profitability. However, the Vanguard S&P 500 Growth ETF takes this a step further by narrowing down the selection to 231 top-performing stocks from the S&P 500, focusing on companies that show strong momentum and impressive sales growth.
This laser focus on quality is a key reason why the Growth index, which the Vanguard ETF tracks, has outperformed the regular S&P 500 over the long term. The ETF mirrors the weightings and composition of the Growth index, offering investors access to some of the most dynamic companies in the market.
Technology Dominates the Growth Index
Technology has long been a dominant force in the stock market, and the Growth index reflects this reality. The technology sector currently accounts for 50.3% of the Growth index, significantly higher than the 31.4% weighting in the regular S&P 500. This heavy reliance on tech giants gives the Vanguard Growth ETF an edge in the rapidly evolving tech landscape, especially as artificial intelligence (AI) continues to transform industries.
Five companies from the tech sector — Apple, Microsoft, Nvidia, Meta Platforms, and Amazon — hold the largest weightings in the Vanguard Growth ETF. These stocks, which have collectively generated an average return of 48.3% this year, are driving the ETF’s remarkable performance. The fund is up 24.3% year-to-date, outperforming the 19.1% gain seen by the broader S&P 500.
AI’s Role in Driving Growth
Artificial intelligence is proving to be one of the most transformative technologies of the decade, with major tech companies heavily investing in AI development. Nvidia, for example, has positioned itself at the center of the AI revolution with its advanced graphics processing units (GPUs) that power data centers and enable AI technologies. In its recent earnings report, Nvidia saw its revenue soar by 122%, driven by growing demand from tech companies building AI infrastructure.
Apple has also joined the AI race, unveiling new software, Apple Intelligence, which enhances the capabilities of its popular products like iPhones, iPads, and Mac computers. Meanwhile, Microsoft continues to see rapid growth in its Azure cloud segment as businesses integrate AI into their operations. These advancements are likely to keep these stocks on a growth trajectory, bolstering the performance of the Vanguard ETF.
Vanguard ETF’s Proven Track Record
Since its inception in 2010, the Vanguard S&P 500 Growth ETF has delivered a compound annual return of 16%, significantly outpacing the S&P 500’s average annual gain of 13.7% over the same period. While this 2.3 percentage point difference may seem small, the power of compounding returns means it has had a substantial impact on investor portfolios over time.
Looking ahead, the continued rise of AI technology is expected to provide additional fuel for the Growth index, as companies like Apple, Microsoft, and Nvidia remain at the forefront of this technological revolution. AI spending is predicted to grow steadily over the next decade, with some estimates placing its potential contribution to the global economy as high as $15.7 trillion by 2030. This rapid growth in AI-driven industries is likely to further enhance the performance of the Vanguard ETF.
Outlook for 2025 and Beyond
As 2025 approaches, investors looking for market-beating returns should keep a close eye on the Vanguard S&P 500 Growth ETF. With its focus on top-performing companies and sectors poised for long-term growth, the ETF is well-positioned to continue outperforming the broader S&P 500.
Even if certain sectors, such as AI, do not live up to their potential, the Growth index has the flexibility to rebalance its holdings as necessary, maintaining its performance advantage. For investors seeking exposure to innovative companies and high-growth industries, the Vanguard S&P 500 Growth ETF remains a strong choice heading into the new year.
