The S&P 500 is an index of 500 companies listed on U.S. stock exchanges, with companies needing to be profitable and have a market capitalization of at least $18 billion to be included. The index is weighted by market cap, with technology companies making up the largest sector at 31.4%, including trillion-dollar giants like Microsoft, Apple, and Nvidia. The S&P 500 Growth index is a subset of around 231 top-performing stocks from the regular S&P 500, with a significant 50.2% weighting in the tech sector. Stocks are selected based on factors like momentum and sales growth, with the index rebalancing every quarter to outperform the regular S&P 500 over the long term.
The Vanguard S&P 500 Growth ETF tracks the S&P 500 Growth index by holding the same stocks and maintaining similar weightings. Its top holdings include companies like Apple, Microsoft, Nvidia, Amazon, and Meta Platforms. The Vanguard ETF has outperformed the S&P 500 over the past year, delivering a return of 36.5% compared to 30.2%. This outperformance is due to the higher returns of the top five holdings, as well as the exclusion of underperforming stocks from the Growth index, allowing for a higher return in the ETF.
The Vanguard ETF has delivered a compound annual return of 15.9% since its establishment in 2010, beating the S&P 500’s average annual gain of 13.7% over the same period. This difference in returns, compounded over time, leads to a significant impact on investment performance. With technologies like cloud computing, semiconductors, and artificial intelligence continuing to drive the tech sector forward, the top holdings in the Vanguard ETF are likely to remain constant, leading to continued outperformance of the S&P 500.
Even if there is a shift in market leadership, the Growth index will rebalance accordingly. This means that any periods of underperformance in the Vanguard ETF relative to the S&P 500 are likely to be short-lived. Investors considering investing in the Vanguard Admiral Funds – Vanguard S&P 500 Growth ETF should also consider other stock picks identified by The Motley Fool Stock Advisor team, as these picks have the potential to produce significant returns in the coming years. The Motley Fool has positions in and recommends companies like Amazon, Apple, Meta Platforms, Microsoft, and Nvidia, providing guidance on building a successful investment portfolio.
