The S&P 500 (^GSPC 1.03%) features around 500 companies listed on U.S. stock exchanges. It has a strict criteria for entry, so only the highest-quality names make the cut. Among other things, new additions must:
- Have a minimum market capitalization of $18 billion.
- Be profitable over the most recent 12-month period.
The S&P 500 is weighted by market cap, so the largest companies have a greater influence over its performance than the smallest. Technology is the biggest sector in the index, with a weighting of 32.4%. It includes companies like Microsoft, Nvidia, and Apple.
But then there is the S&P 500 Growth index. It takes around 231 of the top-performing stocks from the regular S&P 500 and disregards the rest. It selects those stocks based on factors like their momentum and the sales growth of the underlying companies.
Since tech is regularly the fastest-growing sector in the S&P 500, it's no surprise it has a whopping 50.8% weighting in the Growth index.
The Growth index is rebalanced every quarter, when the laggards are kicked out in favor of better-performing stocks. That means it typically outperforms the S&P 500 in the long run:
The Vanguard S&P 500 Growth ETF (VOOG 1.20%) tracks the performance of the S&P 500 Growth index by holding the same stocks and maintaining similar weightings. It has generated a compound annual return of 15.9% since it was established in 2010, comfortably beating the 13.7% average annual gain in the S&P 500 over the same period.
Therefore, this ETF is a great option for investors looking to beat the S&P 500 over the long term.
