As 2025 draws to a close, growth stocks are once again set to outperform value stocks. This is evident in the returns of the Vanguard Growth ETF (VUG 0.02%), which tracks the CRSP US Large Cap Growth index, and the Vanguard Value ETF (VTV 0.27%), which mimics the performance of the CRSP US Large Cap Value index. These indexes are essentially the growth and value portions of the S&P 500.
As of this writing, the Vanguard Growth ETF is up 20.3% on the year, while the Vanguard Value ETF is up 12.7% year to date. That would mark the eighth year that growth stocks outperformed value stocks over the past 10 years and the 13th time in 16 years going back to 2010.
| Year | Vanguard Growth ETF Return | Vanguard Value ETF Return |
|---|---|---|
| 2024 | 32.6% | 15.9% |
| 2023 | 46.9% | 9.3% |
| 2022 | (33.1%) | (2%) |
| 2021 | 27.2% | 26.4% |
| 2020 | 40.3% | 2.3% |
| 2019 | 37.3% | 25.8% |
| 2018 | (3.4%) | (5.5%) |
| 2017 | 27.8% | 17.4% |
| 2016 | 6.2% | 17% |
| 2015 | 3.3% | (0.9%) |
| 2014 | 13.6% | 13.2% |
| 2013 | 32.4% | 33.1% |
| 2012 | 17% | 15.2% |
| 2011 | 1.8% | 1.1% |
| 2010 | 17.2% | 14.5% |
Data source: Vanguard. Chart by author.
It's been a decade of dominance for growth stocks. Over the past 10 years, the growth ETF has generated a cumulative total return of 389.7%, or an average annual return of 17.2%, as of the end of November. Meanwhile, the value ETF has had an average yearly return of nearly 11.5% over that same stretch. That equates to a 196% cumulative return, which is nearly half of that produced by the growth ETF.
Which exchange-traded fund (ETF) will outperform in 2026? I'll examine the case for each.
The case for the Vanguard Growth ETF
Growth stocks have been powering the market higher for much of the past 15 years, and today, most of the world's biggest companies are considered growth companies. In fact, 8 of the 10 largest stocks in the S&P 500 are classified as growth stocks.
Most of these megacap growth companies are in the tech sector or have heavy tech components to them. More than 60% of the growth ETF's portfolio is in tech stocks. Meanwhile, that percentage would bump up to more than 70% if you included Amazon, which is the world's largest cloud computing provider, and Tesla, which is looking to be a leader in autonomous driving and robotics. Both of those stocks are in the consumer discretionary bucket.
NYSEMKT: VUG
Key Data Points
It doesn't matter which sector you put them in, though, because the top eight stocks in the growth ETF's portfolio are all heavily tied to artificial intelligence (AI). Combined, these eight megacap growth stocks -- Nvidia, Apple, Microsoft, Alphabet, Amazon, Broadcom, Tesla, and Meta Platforms -- make up about 60% of the growth ETF's portfolio. As such, whether the growth ETF outperforms in 2026 is largely going to come down to how these AI stocks perform.
While AI looks like it's still in its early innings, there's a good chance that the streak of growth stocks outperforming will continue in 2026.
The case for the Vanguard Value ETF
There's a growing argument that there's an AI bubble, as some AI valuations have become stretched and companies are spending an exorbitant amount to build out AI infrastructure. If this bubble pops, value stocks are likely to outperform.
NYSEMKT: VTV
Key Data Points
Value stocks tend to outperform in bear markets, as can be seen by how the value ETF easily topped the growth ETF in 2022. They also performed well coming out of the dot-com bust, outpacing growth stocks between 2001 and 2008.
While growth stocks have clearly dominated the past 15 years, that hasn't been typical. In fact, Nobel Prize laureate Eugene Fama and Dartmouth professor Kenneth French found that between 1927 and 2019, value stocks topped growth 93% of the time on a 15-year rolling basis.
Meanwhile, with the Fed preparing to begin lowering interest rates, next year could be a better environment for value stocks. Many value stocks are more cyclical in nature and tend to carry debt, so lower rates can both boost the economy and lower interest expense, driving earnings growth for these companies.
Image source: Getty Images.
The verdict
Many of the top AI stocks that have been fueling the market's rise still look reasonably valued, given their growth prospects, and also have great balance sheets and tend to generate strong free cash flow. Bull markets also tend to have staying power. As such, I'd prefer to own growth stocks heading into 2026 and think the Vanguard Growth ETF looks poised to outperform, once again.
