Stop Chasing the S&P 500. This Vanguard ETF Has Beaten It Over the Last Decade.

Anybody who has invested in the S&P 500 (SNPINDEX: ^GSPC) over the past several years is probably happy with its performance. A big driver of the index's returns has been its heavy tilt toward tech and growth stocks.

Steady economic growth, solid earnings, and a government willing to borrow and spend have given U.S. equities a tailwind that's kept the risk-on rally going. Now the artificial intelligence (AI) boom is controlling the narrative. Tech earnings growth is accelerating, and that could keep stock prices moving higher.

In hindsight, there's been little advantage gained by being diversified in sectors, such as consumer staples and healthcare. Its the Magnificent Seven stocks that have been the unquestioned leaders of the current bull market. It won't satisfy the traditional portfolio construction crowd to advocate for more concentrated investing, but that's where the economic growth engine has been heading for a while.

With the AI build-out still in the early innings and a strong track record already built, the Vanguard Growth ETF (NYSEMKT: VUG) has been a winner in the past, and it's positioned to continue being one in the years to come.

Source: Getty Images.

Why the Vanguard Growth ETF has outperformed the S&P 500

The Vanguard Growth ETF quite simply has benefited from its portfolio positioning. While the fund invests in more than 150 stocks overall, its core concentration in the Magnificent Seven names, including NVIDIA, Apple, and Microsoft, has been the key driver.

Source: Vanguard.

From an overall allocation standpoint, the Vanguard Growth ETF lies roughly at the mid-point between the Vanguard S&P 500 ETF and the Vanguard Information Technology ETF.

In reality, growth and tech exchange-traded funds (ETFs) are probably going to look and perform very similarly for the foreseeable future. I prefer the Vanguard Growth ETF because you get at least a modest bit of diversification versus a pure tech fund. There's a 15% allocation to the communication services sector, about half of which comes from Amazon and Tesla. But there's a splash of healthcare and industrials in there too, which might provide some benefit should conditions turn.

What the next decade could look like

The past decade's performance has been heavily predicated on the Fed's easy money policies and the emergence of the AI trade. Given where inflation is right now, it seems unlikely that the Fed will be able to provide much help anytime soon, but the AI trade could still thrive.

The tech sector has already seen major upward revisions to earnings forecasts this quarter, and it's expected to continue posting the highest earnings growth rates in both 2026 and 2027.

Plus, we're still in the midst of one of the biggest capital investment cycles in recent memory. That doesn't necessarily guarantee big returns looking forward, but it's a positive catalyst for the AI-linked sectors that appear heavily in this portfolio.

And we shouldn't ignore the fund's rock-bottom 0.03% expense ratio. When looking out over longer periods, fee drag can become a big factor in underperformance. The Vanguard Growth ETF will pretty much avoid that risk by ensuring that investors keep nearly all earnings from their investment.

The tech sector component is the attractive feature. It has served the fund well over the past decade. It could still have the juice to fuel further outperformance over the next one.

David Dierking has positions in Apple. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, Nvidia, Tesla, Vanguard Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.