Vanguard Growth ETF: Poised to Outperform the S&P 500 in 2026?
The S&P 500, a widely recognized benchmark of the stock market, has delivered consistent returns since its inception in 1957. However, the Vanguard Growth ETF (VUG), which strategically invests in some of the largest growth stocks within the S&P 500, has demonstrated even more impressive long-term performance. Many believe this trend will continue, with some predicting the Vanguard ETF will beat the S&P 500 again in 2026.
Vanguard's Winning Strategy
Year-to-date, the S&P 500 (^GSPC) has returned 13.2%, surpassing its historical average of 10.5%. Impressively, the Vanguard Growth ETF (VUG) has delivered an even higher return of 16.3% over the same period. This isn't an isolated event. The ETF has consistently outperformed the S&P 500 since its inception in 2004.
This outperformance is attributed to the fund's investment strategy, which allocates higher weightings to high-growth stocks that significantly contribute to the S&P 500's returns, particularly those leading the charge in the artificial intelligence (AI) sector. These strategic allocations are the primary reason many experts are forecasting another year of market-beating returns.
High Exposure to Leading Growth Stocks
The Vanguard Growth ETF mirrors the CRSP U.S. Large Cap Growth index, investing in the top 85% of American listed companies by value. Essentially, of the 3,508 companies listed on U.S. stock exchanges, the ETF focuses on the largest ones, holding only 165 stocks that represent 85% of the combined value. This underscores the concentrated nature of wealth in corporate America.
The top five holdings within the Vanguard ETF boast a combined market capitalization of $15.8 trillion. Here's a comparative look at their weightings in the ETF versus the S&P 500:
| Stock | Vanguard ETF Weighting | S&P 500 Weighting |
|---|---|---|
| Nvidia | 12.29% | 7.75% |
| Microsoft | 11.49% | 6.87% |
| Apple | 10.53% | 6.32% |
| Amazon | 6.53% | 3.95% |
| Broadcom | 4.41% | 2.55% |
Data source: Vanguard. Portfolio weightings are accurate as of Aug. 31, 2025, and are subject to change.
These top five stocks have collectively achieved an average return of 20% this year, far exceeding the S&P 500's return. This substantial difference in returns, combined with the Vanguard ETF's higher weightings, directly contributes to its exceptional performance.
The AI Advantage
Nvidia and Broadcom are pivotal suppliers of chips and components for data centers. Nvidia's Blackwell Ultra GPUs are recognized as leading chips for AI workloads, popular among developers of AI reasoning models. Microsoft and Amazon are both developing AI software and serving as major cloud service providers with platforms like Microsoft Azure and Amazon Web Services.
The Vanguard ETF also includes other top AI stocks such as Meta Platforms, Alphabet, and Palantir Technologies, along with diversification in non-technology sectors, including Eli Lilly, Visa, Costco Wholesale, and McDonald's.
Looking Ahead to 2026
Since its inception in 2004, the Vanguard Growth ETF has yielded a compound annual return of 11.9%, surpassing the S&P 500's average annual gain of 10.4% during the same period. The impact of compounding magnifies this seemingly small difference over time.
The prevailing AI boom is expected to bolster stock market returns for several years. Experts like Nvidia CEO Jensen Huang anticipate significant investment in AI infrastructure. Even if the growth of AI slows down, the ETF will still be invested in whatever companies lead the market.
Because the Vanguard Growth ETF passively invests in the top U.S. companies, it's sector-agnostic. America's largest growth stocks will continue rising to the top of the ETF, solidifying its position for sustained outperformance of the S&P 500, even in 2026.
