The S&P 500 (^GSPC +1.18%) index returned 25% (including dividends) in 2024, which was more than double its long-term average of 10.5%. However, the CRSP U.S. Large Cap Growth Index delivered an even better gain of 32% last year, thanks to its much larger holdings in soaring stocks like Nvidia, Meta Platforms, and Amazon.
The Vanguard Growth ETF (VUG +2.00%) is an exchange-traded fund that tracks the performance of the CRSP Growth Index by holding the same stocks and maintaining similar weightings, and it has outperformed the S&P 500 every year, on average, since it was established in 2004.
The Vanguard ETF is currently down 11% from its record high amid the broader stock market sell-off, so investors can pick up a single share for under $400. Here's why it might be a great long-term addition to any balanced portfolio.
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A heavy concentration of technology and artificial intelligence stocks
The CRSP U.S. Large Cap Growth Index invests in the top 85% of American companies, measured by value. Think of it this way: If we took every publicly listed American company and ranked them by their market capitalization, from the largest to the smallest, the CRSP Growth Index would start at the top and move down the list until it captured 85% of the total market cap.
You might be surprised to know there are only 179 stocks in the index, despite there being over 3,500 publicly traded American companies, which highlights the significant concentration of wealth in the corporate sector. Since emerging trends like artificial intelligence (AI) have fostered surging growth for dozens of tech companies over the last couple of years, it's no surprise the technology sector has a 57.6% weighting in the Growth Index (compared to 30.7% in the S&P 500).
Not to mention, the three largest companies in the world are Apple, Microsoft, and Nvidia, and all three are in the technology sector. They have a combined value of $9 trillion and have each become leaders in various segments of the AI industry.
NASDAQ: NVDA
Key Data Points
Below is a list of the top five holdings in the Vanguard ETF (and the Growth Index), and their weightings compared to the S&P 500:
|
Stock |
Vanguard ETF Portfolio Weighting |
S&P 500 Weighting |
|---|---|---|
|
1. Apple |
13.09% |
7.24% |
|
2. Microsoft |
10.57% |
5.85% |
|
3. Nvidia |
10.40% |
6.07% |
|
4. Amazon |
7.19% |
3.93% |
|
5. Meta Platforms |
5.22% |
2.88% |
Data source: Vanguard. Portfolio weightings are accurate as of Feb. 28, 2025, and are subject to change.
Apple has been preparing for the AI revolution for years by designing a series of chips for its iPhones, iPads, and Mac computers that deliver the necessary computing power to run AI applications. The company is now putting that hardware to the test after recently launching its Apple Intelligence software, which enhances the user experience across its devices.
It's still early days, but investors are hoping Apple Intelligence will convince more consumers to upgrade their phones and computers to unlock its full potential.
While Microsoft and Amazon have both developed their own AI foundation models and chatbots, their biggest investments into this technology are in the cloud. The two companies have built state-of-the-art data centers, and they rent the computing capacity to AI developers, who use it to create their own AI software, which is proving to be a highly lucrative business model. Microsoft and Amazon continue to expand their portfolios of AI services beyond infrastructure to create new opportunities to generate revenue.
Meta Platforms, on the other hand, has embedded AI into its recommendation engines on Facebook and Instagram to ensure users see more of the content they enjoy viewing. This keeps them online for a longer time so they see more ads, which drives more revenue for the company. Meta also developed the world's most popular family of open-source large language models (LLMs) called Llama, which are underpinning new features like the Meta AI chatbot.
Nvidia makes all of the above possible. The company is the leading supplier of graphics processing units (GPUs) for data centers, which are the key pieces of hardware involved in AI training and AI inference workloads.
Nvidia continues to up the ante -- after launching its industry-leading Blackwell GB200 GPUs last year, it's now preparing to roll out the Blackwell Ultra GB300, which will deliver even more performance. Simply put, the company remains miles ahead of the competition.
Outside of its top five positions, the Vanguard ETF holds several other popular AI stocks like Tesla, Alphabet, and Broadcom. However, it also holds numerous non-technology giants like Visa, Costco, McDonald's, and Starbucks, so it does offer some diversification.
Image source: Getty Images.
A great track record against the S&P 500
The Vanguard Growth ETF has delivered a compound annual return of 11.6% since its inception in 2004, which is better than the average annual gain of 10.3% in the S&P 500 over the same period. In other words, its outperformance in 2024 was not a fluke, but rather the continuation of a consistent trend.
Nevertheless, we can't ignore the sizable contribution the top five holdings in the ETF made last year, thanks to their average return of 64%:
In other words, if the Vanguard ETF is to outperform the S&P 500 again in 2025, AI is likely to be the driving force. Based on recent guidance from Amazon, Microsoft, Alphabet, and Meta, we know they plan to spend over $300 billion (combined) on AI data center infrastructure this year alone, which will be a massive tailwind for hardware suppliers like Nvidia, Broadcom, and Advanced Micro Devices.
Moreover, those tech behemoths wouldn't be investing that money if they didn't expect a return, so it could translate into significant AI software revenue in the future.
Therefore, despite the recent turbulence sweeping across the broader stock market, the AI theme looks to remain intact for the foreseeable future. Since the Vanguard ETF is currently down 11% from its recent record high, this could be an ideal time to buy it before a potential bounce back later in the year.
