Prediction: This Magnificent Vanguard ETF Will Beat the S&P 500 (Again) in 2026

The CRSP U.S. Total Market Index is made up of all 3,498 companies listed on American stock exchanges. The CRSP U.S. Large Cap Growth Index, on the other hand, covers 85% of the total market capitalization of the Total Market Index. To put it another way, if we ranked all 3,498 stocks from largest to smallest, the Large Cap Growth Index would start at the top of the list and work its way down until it captured 85% of its total value.

There are just 150 stocks in the Large Cap Growth index. That's right: A mere 150 companies represent 85% of the value of the entire American stock market. Perhaps it's less surprising when you consider the three largest companies alone -- Nvidia, Alphabet, and Apple -- are worth a combined $12.2 trillion.

One exchange-traded fund (ETF) that tracks the Large Cap Growth Index is the Vanguard Growth ETF (NYSEMKT: VUG). It has consistently outperformed the market since its inception in 2004 thanks to its concentrated portfolio of America's top-performing stocks, and here's why I predict 2026 will be no different.

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Diversified exposure to some of the highest quality stocks in the world

Although the Vanguard Growth ETF holds around 150 stocks, it's quite top-heavy, with its five largest positions alone accounting for 49.5% of the total value of its portfolio.

Data source: Vanguard. Portfolio weightings are accurate as of Dec. 31, 2025, and are subject to change.

These are some of America's largest technology companies, and they are leading the global artificial intelligence (AI) revolution with trillions of dollars in combined spending to build advanced data centers and software.

Since the AI boom started gathering momentum in early 2023, those five stocks have delivered an average return of 363%, which is much higher than the 80% gain in the S&P 500 index over the same period. Therefore, they have been a big reason for the outperformance in the Vanguard Growth ETF lately.

While those stocks are likely to continue delivering strong returns, I want to highlight a handful of others in this ETF that are also uniquely positioned for upside over the next year (and beyond):

• Netflix, which operates the world's largest streaming platform for movies and television shows. Its stock is down 34% from its all-time high after a big rally last year, and it looks very attractive considering the company's incredible momentum and potential.
• Oracle, which operates some of the AI industry's most powerful and cost-efficient data center infrastructure. Despite concerns about the company's high debt, I think its stock could be poised for long-term upside as demand for computing capacity continues to outstrip supply.
• Uber Technologies, which operates the world's largest ride-hailing network. It's positioning itself to lead the autonomous vehicle revolution, which could transform the economics of its business.
• CrowdStrike, which continues to experience soaring demand for its AI-powered cybersecurity platform, Falcon. Its stock is trading at a 20% discount to its record high, which could bring in some buyers as 2026 progresses.

But the Vanguard ETF isn't just all about tech and tech-adjacent stocks. Eli Lilly, Visa, Mastercard, Costco Wholesale, and McDonald's are also sprinkled among its top 20 holdings.

This Vanguard ETF could beat the S&P 500 again in 2026

The Vanguard Growth ETF has delivered a compound annual return of 12.1% since its inception in 2004, beating the average annual gain of 10.5% in the S&P 500 over the same period.

The CRSP U.S. Large Cap Growth Index rebalances once per quarter (as does the Vanguard ETF), removing any stocks that no longer meet its criteria and replacing them with more suitable candidates. That means it regularly eliminates many of the poor-performing stocks that might be weighing down other indexes like the S&P 500.

While investing more aggressively in growth stocks is a huge driver of returns, maintaining less exposure to weaker parts of the market is another major tailwind when it comes to performance. For example, the financial sector, which is known for steady but relatively modest returns, has a 13.1% weighting in the S&P 500, compared to a weighting of just 5.5% in the Vanguard ETF. Similarly, the utilities sector makes up 2.3% of the S&P, but just 0.1% of the Vanguard ETF.

I think the technology industry will continue driving the market higher, led by AI stocks like Nvidia, which will give the Vanguard Growth ETF a clear pathway to outperform the S&P 500 yet again in 2026. But the ETF also has enough exposure to the more defensive areas of the tech sector to beat the market even if the AI segment pulls back. They include the streaming, software, and cybersecurity industries with reliable recurring revenue streams (think stocks like Microsoft, Alphabet, Amazon, Netflix, and CrowdStrike).

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, CrowdStrike, Mastercard, Microsoft, Netflix, Nvidia, Oracle, Uber Technologies, Vanguard Index Funds-Vanguard Growth ETF, and Visa. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.