Vanguard was founded by index fund evangelist John Bogle in 1975, and the company has since become the second-largest asset manager in the world. Listed below are the two Vanguard index funds that have generated the greatest returns year to date as of Nov. 20.
- The Vanguard Financials ETF(NYSEMKT: VFH) has returned 34%.
- The Vanguard S&P 500 Growth ETF(NYSEMKT: VOOG) has returned 33%.
Owning index funds is a convenient way for investors to track the performance of the entire stock market, individual market sectors, and certain types of equities. Read on to learn more about the two index funds listed above.
1. Vanguard Financials ETF: 34% return year to date
The Vanguard Financials ETF tracks the performance of 404 U.S. companies in the financial sector, which has been the second-best-performing market sector in the S&P 500 this year due to relatively reasonable valuations and expectations that President-elect Donald Trump could deregulate the banking industry.
The companies included in the Vanguard Financials ETF participate in a wide variety of financial activities, from lending and payments to insurance and asset management. The five largest holdings in the index fund are listed by weight below:
- JPMorgan Chase: 8.5%
- Berkshire Hathaway: 8%
- Mastercard: 5.5%
- Visa: 4.2%
- Bank of America: 3.9%
The companies listed above account for roughly 30% of the Vanguard Financials ETF and represent a diversified selection of blue chip stocks. JPMorgan Chase and Bank of America are the two largest U.S. banks by assets, and Berkshire Hathaway is one of the largest insurance companies. Mastercard and Visa are the largest card-payments companies in the U.S.
While the Vanguard Financials ETF is beating the S&P 500 this year, its five-year return of 84% still trails the S&P 500's five-year return of 105%. Additionally, the index fund has an expense ratio of 0.1%, which makes it more costly than most S&P 500 index funds. For instance, the Vanguard S&P 500 ETF has an expense ratio of 0.03%.
Personally, I would rather own a broad-based index fund that tracks the entire S&P 500 versus one that specifically tracks the financial sector. And I think Vanguard founder John Bogle would agree. He once said, "The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing."
2. Vanguard S&P 500 Growth ETF: 33% return year to date
The Vanguard S&P 500 Growth ETF tracks the performance of 234 U.S. companies in the S&P 500 index that are classified as growth stocks, based on their revenue growth, earnings growth, and price appreciation. The index fund is most heavily invested in three stock market sectors: technology (50%), consumer discretionary (14%), and communications services (13%).
The five largest holdings in the Vanguard S&P 500 Growth ETF are listed by weight below:
- Apple: 12.5%
- Nvidia: 11.9%
- Microsoft: 11%
- Amazon: 6.3%
- Meta Platforms: 4.5%
The companies listed above account for about 46% of the Vanguard S&P 500 Growth ETF, and all of them could benefit as artificial intelligence (AI) spending increases. Apple has added AI features to its iPhones and MacBooks, while Nvidia's graphics processing units (GPUs) are the gold standard in AI accelerators. Microsoft and Amazon are the largest public clouds. And Meta Platforms is using AI to boost engagement across its social media platforms.
The Vanguard S&P 500 Growth ETF isn't only beating the S&P 500 year to date, but its five-year return of 125% also exceeds the S&P 500's five-year return of 105%. While the growth-focused ETF has an expense ratio of 0.1%, making it more costly than the Vanguard S&P 500 ETF, the additional fees wouldn't offset the outperformance.
Even so, I think most investors should prioritize a broad-based S&P 500 index fund over growth-focused variations. Indeed, Warren Buffett has recommended that strategy. However, risk-tolerant investors with a long time horizon (at least three to five years) could complement an S&P 500 index fund with a growth-focused ETF to capitalize on the projected increase in AI spending in the coming years.
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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. JPMorgan Chase is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Trevor Jennewine has positions in Amazon, Mastercard, Nvidia, Vanguard S&P 500 ETF, and Visa. The Motley Fool has positions in and recommends Amazon, Apple, Bank of America, Berkshire Hathaway, JPMorgan Chase, Mastercard, Meta Platforms, Microsoft, Nvidia, Vanguard S&P 500 ETF, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard, long January 2026 $395 calls on Microsoft, short January 2025 $380 calls on Mastercard, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
