Prediction: This Unstoppable Vanguard ETF Will Beat the S&P 500 Yet Again in 2026
Key Points
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The S&P 500 stock market index has delivered steady returns since it was established in 1957, thanks to its diversified composition.
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The Vanguard Growth ETF invests more aggressively in some of the largest stocks in the S&P 500, resulting in even better long-term returns.
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The Vanguard ETF is likely to beat the S&P 500 again in 2026 because of its unique investment strategy.
The S&P 500(SNPINDEX: ^GSPC) has returned 13.2% so far this year, outpacing its average gain of 10.5% per year since it was established in 1957.
However, had you invested in the Vanguard Growth ETF(NYSEMKT: VUG) at the start of this year instead, you’d be sitting on an even better return of 16.3%. This result isn’t a one-off, because the exchange-traded fund (ETF) has outperformed the S&P 500 every year since it was established in 2004.
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That’s because it assigns much higher weightings to the high-growth stocks responsible for the bulk of the returns in the S&P 500, particularly those at the forefront of the artificial intelligence (AI) revolution. Here’s why I predict the Vanguard ETF will beat the index yet again in 2026.
Image source: Getty Images.
High exposure to America’s most prominent growth stocks
The Vanguard Growth ETF tracks the CRSP U.S. Large Cap Growth index, which invests in the top 85% of American listed companies by value. To put it another way, let’s say we took all 3,508 companies listed on U.S. stock exchanges and ranked them in order of their size, from the biggest to the smallest. The Large Cap index starts at the top and buys each stock until it captures 85% of the combined value of the 3,508 companies.
The Vanguard Growth ETF holds just 165 stocks, which highlights the extreme concentration of wealth in corporate America. In other words, the top 165 companies represent 85% of the total value of all 3,508 companies, so the remaining 3,343 companies account for the other 15%.
The top five holdings in the Vanguard ETF alone have a combined market capitalization of $15.8 trillion. The table displays their weightings in the ETF relative to their weightings in the S&P 500:
|
Stock |
Vanguard ETF Weighting |
S&P 500 Weighting |
|---|---|---|
|
1. Nvidia |
12.29% |
7.75% |
|
2. Microsoft |
11.49% |
6.87% |
|
3. Apple |
10.53% |
6.32% |
|
4. Amazon |
6.53% |
3.95% |
|
5. Broadcom |
4.41% |
2.55% |
Data source: Vanguard. Portfolio weightings are accurate as of Aug. 31, 2025, and are subject to change.
Those five stocks have delivered an average return of 20% this year, which is much higher than the return in the S&P 500. Therefore, since the Vanguard ETF assigns them much higher weightings, its outperformance should come as no surprise.
Nvidia and Broadcom are leading suppliers of chips and components for data centers. Nvidia’s latest Blackwell Ultra graphics processing units (GPUs) are the best chips in the world for AI workloads, and they are especially popular among developers of AI reasoning models, which require substantial amounts of computing power.
Microsoft and Amazon have expanding portfolios of AI software that they developed in-house, but they are also two of the world’s largest providers of cloud services. Their cloud platforms, Microsoft Azure and Amazon Web Services, supply the computing power and ready-made large language models (LLMs) businesses need to develop and deploy AI software.
The Vanguard ETF holds a number of other top AI stocks in its portfolio, including Meta Platforms, Alphabet, and Palantir Technologies. But it offers a splash of diversification, with nontechnology stocks like Eli Lilly, Visa, Costco Wholesale, and McDonald’s among its top 20 positions.
The Vanguard ETF could beat the S&P 500 again in 2026
The Vanguard Growth ETF has delivered a compound annual return of 11.9% since it was established in 2004, which beats the average annual gain of 10.4% in the S&P 500 over the same period. The gap might not sound very big at face value, but the compounding effect makes a world of difference over the long term:
The AI boom is likely to fuel stock market returns for at least the next few years. Nvidia CEO Jensen Huang thinks data center operators like Microsoft, Amazon, and Alphabet will spend a whopping $4 trillion on AI infrastructure to meet demand from developers by 2030 alone. But that pales in comparison to the software opportunity, which Cathie Wood’s Ark Investment Management predicts could be worth a staggering $13 trillion over the same period.
However, since the Vanguard Growth ETF passively invests in the top 85% of U.S. listed companies by value, it’s completely sector-agnostic. If stocks like Nvidia were to flounder because AI failed to live up to expectations, they would simply lose their rankings at the top of the ETF in favor of more suitable candidates.
To put it another way, America’s largest growth stocks will always find their way to the top of the Vanguard ETF, no matter what industry they are in. This makes me confident the ETF will outperform the S&P 500 yet again in 2026, even if the AI boom unexpectedly loses some steam.
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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, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Vanguard Index Funds-Vanguard Growth ETF, and Visa. The Motley Fool recommends Broadcom and 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.