Meet the Vanguard ETF That Has Outperformed the Market Nearly 64% of the Time -- and Will Likely Continue Doing So
Key Points
The Vanguard Morningstar Growth ETF's large-cap holdings provide both stability and high growth.
This ETF has outperformed the S&P 500 in 14 of the 22 full years since its inception.
There's a lot of overlap between VUG and the S&P 500's top holdings, but VUG is much more concentrated.
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When many investors refer to the "market," they usually mean the S&P 500, because it's the stock market's most-followed and most important index.
For most stocks and exchange-traded funds (ETFs), the goal is to outperform the S&P 500, although it's much easier said than done. Less than 11% of actively managed funds outperform the S&P 500 over five years, less than 17% do over 10 years, and less than 10% do over 15 years, according to the S&P Dow Jones Indices' S&P Indices Versus Active (SPIVA) U.S. Scorecard.
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However, one Vanguard ETF has a strong track record of outperforming the market: the Vanguard Morningstar Growth ETF (NYSEMKT: VUG). Since it began trading in January 2004, it has outperformed the S&P 500 in 14 of those years. I can see this trend continuing, too.
Image source: Getty Images.
Meet VUG
VUG holds 147 large-cap growth stocks, giving investors a good 2-for-1. Large-cap stocks offer some stability because they're established and strong in their industries. In this case, these companies also have above-average revenue and profit growth.
Since VUG focuses on growth stocks, tech accounts for a lot of the fund, at 69.8%. "Magnificent Seven" stocks -- Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta Platforms, and Tesla -- alone account for over 56%. So, as big tech performs, so does VUG, for the most part.
It's not all tech, though. It holds heavyweights from other sectors, such as Eli Lilly, Costco Wholesale, and Visa, which provides some protection against tech-specific struggles. That said, its tech concentration is why it has outperformed the market so often over the past 22 years.
| Year | VUG Total Return | S&P 500 Total Return | Outperformer |
|---|---|---|---|
| 2025 | 19.4% | 17.9% | VUG |
| 2024 | 32.7% | 25% | VUG |
| 2023 | 46.8% | 26.3% | VUG |
| 2022 | (33.2%) | (18.1%) | S&P 500 |
| 2021 | 27.4% | 28.7% | S&P 500 |
| 2020 | 40.3% | 18.4% | VUG |
| 2019 | 37% | 31.5% | VUG |
| 2018 | (3.3%) | (4.4%) | VUG |
| 2017 | 27.7% | 21.8% | VUG |
| 2016 | 6.3% | 12% | S&P 500 |
| 2015 | 3.2% | 1.4% | VUG |
| 2014 | 13.6% | 13.7% | S&P 500 |
| 2013 | 32.5% | 32.4% | VUG |
| 2012 | 17% | 16% | VUG |
| 2011 | 1.8% | 2.1% | S&P 500 |
| 2010 | 17.2% | 15.1% | VUG |
| 2009 | 39% | 26.5% | VUG |
| 2008 | (38%) | (37%) | S&P 500 |
| 2007 | 12.5% | 5.5% | VUG |
| 2006 | 9.2% | 15.8% | S&P 500 |
| 2005 | 5% | 4.9% | VUG |
| 2004 | 5% | 10.9% | S&P 500 |
Data source: YCharts.
Why VUG can continue to outperform
Part of why VUG should continue to outperform is its overlap with the S&P 500. Of VUG's 151 stocks, 84% are in the S&P 500. More notably, nine of their top 10 holdings overlap.
| Holding | Weight in VUG | Weight in S&P 500 |
|---|---|---|
| Nvidia | 13.61% | 8.08% |
| Apple | 12.48% | 7.03% |
| Microsoft | 10.11% | 5.69% |
| Alphabet (Class A) | 5.34% | 3.01% |
| Amazon | 4.76% | 3.84% |
| Alphabet (Class C) | 4.20% | 2.39% |
| Broadcom | 4.10% | 2.65% |
| Meta Platforms | 3.38% | 1.90% |
| Tesla | 2.79% | 1.56% |
| Eli Lilly | 2.64% | 1.38% |
| Micron | 0.45% | 1.63% |
Data source: Vanguard. Percentages as of Aug. 31.
The same companies lead both, but the concentration gives VUG the edge -- and the higher risk.
Right now, these companies are the main drivers of the U.S. economy, and developments in AI, cloud computing, and other digital infrastructure we rely on daily have all but ensured they'll keep growing. Going with VUG is essentially betting that the "winners" will keep "winning" -- and without having to pull more mature, slower-growing stocks that the S&P 500 may hold along the way.
There will undoubtedly be down periods along the way, and VUG has concentration risk you should watch (especially if you're already investing in an S&P 500 ETF). However, I imagine that over the next 20 years, VUG will have outperformed the market in more years than it underperformed. It's one of the stock market's top growth ETFs.
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Stefon Walters has positions in Apple, Microsoft, and Visa. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Costco Wholesale, Eli Lilly, Meta Platforms, Micron Technology, Microsoft, Nvidia, Tesla, Vanguard Morningstar Growth ETF, and Visa. The Motley Fool has a disclosure policy.
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