Finance

Vanguard Growth ETF vs. S&P 500: Can VUG’s Tech-Heavy Strategy Keep Outperforming Through 2026?

Vanguard Growth ETF (VUG) has outperformed the S&P 500 since 2004, driven by tech stocks, with analysts projecting continued gains.

byAndres Castro

October 19, 2025, 10:35 AM

A close-up of a digital screen displaying the S&P 500 stock market index with a glowing green performance chart.

A digital screen displays real-time data for the S&P 500 stock market index. By MDL.

Executive Summary

The Vanguard Growth ETF (VUG) has consistently outperformed the S&P 500 since its inception in 2004 and is projected to continue this trend into 2026, with an 11% average annual return compared to the S&P 500’s 8.4%.

VUG’s outperformance is attributed to its concentrated exposure to large-cap growth technology companies, with 62% of its holdings in tech and a higher weighting in top firms like Nvidia, Microsoft, and Apple compared to the S&P 500.

The ongoing artificial intelligence (AI) boom is identified as a significant factor supporting VUG’s future growth, as many of its largest holdings are central to the AI ecosystem, despite the inherent risk of its high concentration in these stocks.

The Story So Far

The Vanguard Growth ETF (VUG) has consistently outperformed the S&P 500 since its inception primarily due to its concentrated exposure to large-cap growth technology companies, which make up 62% of its holdings. This ETF, while sharing many top constituents with the S&P 500, assigns significantly higher weightings to these leading tech firms, positioning it strongly to benefit from the ongoing artificial intelligence (AI) boom, as many of its key holdings are central to the AI ecosystem.

Why This Matters

The Vanguard Growth ETF (VUG) has consistently outperformed the S&P 500 and is projected to continue this trend through 2026, primarily due to its concentrated exposure to large-cap growth technology companies heavily involved in the AI boom. This strategic weighting in key tech players like Nvidia and Microsoft positions VUG as a potentially strong investment for growth-seeking portfolios, although its concentration also introduces higher risk if these leading companies experience a downturn.

Who Thinks What?

Analysts project that the Vanguard Growth ETF (VUG) will continue to outperform the S&P 500, attributing its historical and future success to its concentrated exposure to large-cap growth technology companies, many of which are central to the artificial intelligence (AI) boom.

The article suggests that VUG’s high concentration in leading growth stocks, while a driver of past outperformance and future potential, also presents a risk, as a downturn in these large holdings could lead to more significant underperformance compared to the more diversified S&P 500.

The Vanguard Growth ETF (VUG) has consistently outperformed the S&P 500 since its inception in January 2004, with analysts projecting this trend to continue into 2026. This outperformance is largely attributed to VUG’s concentrated exposure to large-cap growth technology companies, many of which are also significant components of the broader S&P 500 index.

Performance Comparison

Year-to-date, the Vanguard Growth ETF has recorded a 16% gain, surpassing the S&P 500’s 13.5% return. Since its launch, VUG has delivered an average annual return of 11%, compared to the S&P 500’s average of approximately 8.4% over the same period.

This difference, while seemingly small annually, has resulted in substantial compounding effects. For instance, an initial investment of $1,000 in VUG at its inception would now be worth considerably more than the same investment in the S&P 500.

ETF Composition and Overlap

The Vanguard Growth ETF tracks the CRSP US Large Cap Growth Index, comprising 160 companies that represent the top 85% of the total market capitalization of U.S. firms. Technology companies constitute 62% of VUG’s holdings.

Both VUG and the S&P 500 are market-cap weighted, leading to significant overlap in their largest holdings. Nine of the top 10 companies in VUG are also among the top 10 in the S&P 500. These shared holdings include prominent technology firms such as Nvidia, Microsoft, Apple, Alphabet, Amazon, Broadcom, Meta Platforms, and Tesla.

Key Holdings and Weightings

As of September 30, the top holdings within VUG and their respective weightings compared to the S&P 500 highlight VUG’s greater concentration in these growth companies:

Nvidia: 12.01% of VUG, 7.95% of S&P 500
Microsoft: 10.70% of VUG, 6.73% of S&P 500
Apple: 10.47% of VUG, 6.60% of S&P 500
Alphabet (both classes): 6.77% of VUG, 4.46% of S&P 500
Amazon: 5.55% of VUG, 3.72% of S&P 500
Broadcom: 4.26% of VUG, 2.71% of S&P 500
Meta Platforms: 4.22% of VUG, 2.78% of S&P 500
Tesla: 3.70% of VUG, 2.18% of S&P 500

Collectively, these companies account for approximately 57% of VUG’s portfolio, compared to about 37% of the S&P 500, which has been a primary driver of VUG’s stronger performance.

Future Growth Prospects

The ongoing artificial intelligence (AI) boom is identified as a significant factor supporting VUG’s continued growth. Many of its largest holdings are central to the AI ecosystem:

Nvidia is a leading provider of graphics processing units (GPUs) essential for AI training.
Broadcom supplies critical AI-networking hardware.
Microsoft, Amazon, and Alphabet dominate cloud computing services, a foundation for AI development.
Apple, while perceived as lagging in AI, maintains a strong position in tech hardware.
Meta Platforms’ advertising business is benefiting from AI advancements.
Tesla is focused on leveraging AI for autonomous driving technologies.

This strong alignment with a major technological trend positions VUG favorably for future performance.

Considerations and Outlook

While VUG’s high concentration in leading growth stocks has fueled its past success, it also presents a risk. A downturn in these large holdings could lead to underperformance, potentially affecting VUG more significantly than the more diversified S&P 500. Despite this concentration, the ETF is considered a strong candidate to continue outperforming the broader market in 2026, making it a staple piece in a diversified investment portfolio.