Vanguard was founded in 1975 by index fund evangelist John Bogle and has since become the second largest asset manager in the world. Below are the two Vanguard index funds that have generated the highest returns yet as of November 20.
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 stocks. Read on to learn more about the two index funds mentioned above.
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The Vanguard Financials ETF tracks the performance of 404 U.S. companies in the financial sector, the second-best performing market sector in the world. S&P500 this year due to relatively reasonable valuations and expectations that President-elect Donald Trump could deregulate the banking sector.
The companies included in the Vanguard Financials ETF participate in a wide range of financial activities, from lending and payments to insurance and asset management. The five largest holdings in the index fund are shown below by weight:
JPMorgan Chase: 8.5%
Berkshire Hathaway: 8%
MasterCard: 5.5%
Visa: 4.2%
Bank of America: 3.9%
The companies listed above account for approximately 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 payment companies in the US
Although the Vanguard Financials ETF is beating the S&P 500 this year, its five-year return of 84% is still lower than the S&P 500’s five-year return of 105%. Additionally, the index fund has an expense ratio of 0.1%, making it more expensive than most S&P 500 index funds. For example the Vanguard S&P 500 ETF has an expense ratio of 0.03%.
Personally, I would rather own a broad index fund that tracks the entire S&P 500 than an index fund 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 to own the entire stock market through an index fund, and then do nothing.”
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 shown below by weight:
Apple: 12.5%
Nvidia: 11.9%
Microsoft: 11%
Amazon: 6.3%
Metaplatforms: 4.5%
The companies mentioned above account for about 46% of the Vanguard S&P 500 Growth ETF, and all 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 uses AI to increase engagement on its social media platforms.
The Vanguard S&P 500 Growth ETF not only beats the S&P 500 year to date, but its five-year return of 125% also beats the S&P 500’s five-year return of 105%. While the growth-oriented ETF has an expense ratio of 0.1%, making it more expensive than the Vanguard S&P 500 ETF, the additional costs might not offset the outperformance.
Still, I think most investors should prioritize a broad-based S&P 500 index fund over growth-oriented variations. Warren Buffett has indeed recommended this strategy. However, risk-tolerant investors with a long time horizon (at least three to five years) could supplement an S&P 500 index fund with a growth-oriented ETF to benefit from the expected 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, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, 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 Jennevine has positions in Amazon, Mastercard, Nvidia, Vanguard S&P 500 ETF and Visa. The Motley Fool holds 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 calls of $370 on Mastercard, long January 2026 calls of $395 on Microsoft, short January 2025 calls of $380 on Mastercard, and short January 2026 calls of $405 on Microsoft. The Motley Fool has a disclosure policy.
Meet the 2 Best Performing Vanguard Index Funds of 2024, originally published by The Motley Fool
