The S&P 500 (SNPINDEX: ^GSPC) delivered a total return of 25% (including dividends) during 2024. However, had you invested in the Vanguard S&P 500 Growth ETF (NYSEMKT: VOOG), you would have earned a total return of 35.9% instead.
This particular exchange-traded fund (ETF) tracks the performance of the S&P 500 Growth index, which holds 208 of the best-performing growth stocks from the regular S&P 500 and ignores the rest. That means it assigns much higher weightings to powerhouse technology stocks like Nvidia, Meta Platforms, Tesla, and more.
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Last year's performance wasn't a one-off for the Vanguard S&P 500 Growth ETF; it has crushed the S&P 500 every year (on average) since it was established in 2010. With themes like artificial intelligence (AI) driving significant upside in America's largest tech stocks, here's why I predict the ETF will beat the index again in 2025.
Image source: Getty Images.
Significant holdings in the AI industry's biggest players
The S&P 500 Growth index selects its holdings based on factors like their momentum and the sales growth of the underlying companies. That's why Nvidia is the largest position in the Vanguard S&P 500 Growth ETF. Thanks to AI, the company is consistently growing its revenue by triple-digit percentages each quarter, and its stock has rocketed higher by 490% over the last two years alone.
In fact, almost all of the top 10 companies in the Vanguard S&P 500 Growth ETF are betting heavily on AI and experiencing strong growth as a result. Those 10 holdings represent 53.9% of the total value of the ETF:
|
Stock |
Vanguard ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
12.72% |
|
2. Apple |
6.73% |
|
3. Microsoft |
6.29% |
|
4. Meta Platforms |
4.93% |
|
5. Amazon |
4.60% |
|
6. Tesla |
4.36% |
|
7. Alphabet Class A |
4.27% |
|
8. Broadcom |
4.18% |
|
9. Alphabet Class C |
3.50% |
|
10. Eli Lilly |
2.35% |
Data source: Vanguard. Portfolio weightings are accurate as of Dec. 31, 2024, and are subject to change.
Nvidia is the leading supplier of graphics processing units (GPUs) for data centers, which are the key pieces of hardware for developing AI models. And the company intends to dominate many subsegments of AI in the future, including autonomous vehicles and robotics.
Microsoft, Amazon, and Alphabet have each developed AI chatbots that are embedded into some of their flagship software products. And they are the three leaders in cloud computing, which is where businesses access the data center computing capacity and ready-made models they need to build their own AI software.
Meta Platforms is one of the most interesting AI stories. The company is integrating the technology into its Facebook, Instagram, and WhatsApp social networks. It also developed Llama, which is the most popular family of open-source large language models (LLMs) in the world with over 600 million downloads. Meta will launch Llama 4 this year, which could be as powerful as some of the best closed-source LLMs on the market.
Despite being dominated by AI stocks, the Vanguard ETF is somewhat diversified. Sitting just outside its top 10 holdings, investors will find payments giant Visa, Warren Buffett's Berkshire Hathaway, the world's largest investment bank JPMorgan Chase, and retail powerhouses Costco Wholesale and Walmart.
The recipe for beating the S&P 500 again in 2025
The 35.9% return in the Vanguard S&P 500 Growth ETF last year was mostly attributable to its top five holdings, which delivered an average gain of 64%.
But as I mentioned at the top, the Vanguard ETF has a great track record against the S&P 500, which began long before AI exploded onto the scene. The ETF has delivered a compound annual return of 16.3% since it was established in 2010, crushing the average annual gain of 14.1% in the S&P over the same period.
A difference of 2.2 percentage points might not sound like much at face value, but it makes a big impact in dollar terms thanks to the magic of compounding:
|
Starting Balance (2010) |
Compound Annual Return |
Balance (End Of 2024) |
|---|---|---|
|
$100,000 |
16.3% |
$963,153 |
|
$100,000 |
14.1% |
$723,243 |
Calculations by author.
Growth stocks are likely to continue leading the broader market higher in 2025 simply because there isn't another trend quite as powerful as AI right now. According to PwC, the technology could add $15.7 trillion to the global economy by 2030, and a lot of that value is likely to be created by the companies currently dominating the industry.
With that said, growth stocks tend to decline very sharply in the event of any economic shock that triggers a broader market correction. There isn't anything of concern on the horizon today, but an event out of left field could push investors into safer value stocks, especially those that pay big dividends.
But looking at the chart below, which overlays the Vanguard S&P 500 Growth ETF with the S&P 500 Pure Value index, betting on growth over value has been extremely rewarding over the long term:
Therefore, absent an unexpected economic shock, I think the Vanguard S&P 500 Growth ETF will crush the S&P 500 yet again in 2025.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Costco Wholesale, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Tesla, Visa, and Walmart. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
