1 Vanguard ETF I Trust to Outperform the Market Long Term
Key Points
The Vanguard Growth ETF (VUG) has outperformed the S&P 500 in 17 of its 22 years of existence.
VUG tends to underperform the market when the tech sector isn't performing well.
The "Magnificent Seven" stocks account for over 56% of VUG.
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When investors refer to the "market," it's usually the S&P 500. It tracks around 500 of the largest American companies on the stock market, and its performance is often used as a benchmark for determining whether a stock or ETF has performed "well."
Through the first three months of the year, the S&P 500 declined by 4.6%. The Vanguard Growth ETF (NYSEMKT: VUG) -- which focuses on large-cap growth stocks -- performed worse (declining by nearly 10.5%), but it's an ETF I trust to be a long-term market-beater.
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Now might not be its best stretch, but its long-term appeal remains strong.
Image source: Getty Images.
A history of outperforming the market
VUG isn't officially a tech ETF, but the growth focus has made it inherently tech-heavy. The tech sector accounts for nearly 65% of VUG, far ahead of the second-most-represented sector, consumer discretionary, at just over 16%.
The high concentration in tech hasn't worked out well for VUG this year, but it has historically worked in its favor. Since it hit the market in January 2004, VUG has consistently outperformed the S&P 500. It's up 792% compared to the index's 469% in that span, and it has produced better returns in 17 of those 22 years. Below is how their returns have stacked up over the past decade:
| Year | VUG Returns | S&P 500 Returns |
|---|---|---|
| 2025 | 18.9% | 16.4% |
| 2024 | 32% | 23.3% |
| 2023 | 45.8% | 24.2% |
| 2022 | (33.6%) | (19.4%) |
| 2021 | 26.7% | 26.9% |
| 2020 | 39% | 16.3% |
| 2019 | 35.6% | 28.9% |
| 2018 | (4.5%) | (6.2%) |
| 2017 | 26.3% | 19.4% |
| 2016 | 4.6% | 9.5% |
Source: YCharts. Table by author.
Past results don't guarantee future performance, so don't take this as a guarantee that the trend will continue. But the larger point is that growth investing has rewarded investors who can stomach the swings that often come with it.
There's no shame in tech leading the way
Right now, VUG is admittedly too top-heavy, with Nvidia and Apple alone accounting for over a quarter of the ETF, and the "Magnificent Seven" stocks accounting for over 56%. That's very concentrated for a 151-stock ETF. I don't anticipate this being the norm over the long run, but it's worth noting the risks that come with that in the near future.
That said, I still expect tech to drive VUG's growth, which is why I'm confident in its long-term outperformance. The tech world has industries that are relatively early in the trajectory that many people expect them to follow. Whether it's cloud computing, cybersecurity, fintech, quantum computing, or any of the breakthroughs from the AI boom, many top tech companies are well positioned for continued growth.
Many of these top companies are also in the S&P 500, so VUG will naturally thrive as they and the index continue to grow.
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Stefon Walters has positions in Apple. The Motley Fool has positions in and recommends Apple, Nvidia, and Vanguard Growth ETF and is short shares of Apple. The Motley Fool has a disclosure policy.
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