Vanguard has been bringing cheers to many investors recently. Out of the 86 exchange-traded funds (ETFs) they manage, 42 have reported double-digit year-to-date total returns. Among these, 16 Vanguard ETFs have achieved a remarkable total return of at least 20%. This prompts the question: which Vanguard ETF has been the standout performer in 2024 so far?
Surprisingly, some of the top-performing funds may not have been the obvious choices. The Vanguard Utilities ETF, known by its ticker symbol VPU, had reigned as the leading performer among Vanguard’s ETFs for much of the early part of the year, sporting a solid total return of 25.7%. Generally, utility stocks are regarded as stable but not particularly thrilling. Yet, expectations that the Federal Reserve would decrease interest rates, followed by an actual rate cut, buoyed the utilities sector, propelling the Vanguard Utilities ETF forward.
Coming in as the second-best performer is the Vanguard Communication Services ETF, or VOX, with an impressive total return of 27.3%. The driving force behind this rise has largely been share price appreciation, as the fund's holdings include stocks that typically offer no or minimal dividends. Certain key players have made a significant contribution to this ETF’s success in 2024. Meta Platforms, Facebook’s parent company, constitutes 23.2% of the ETF. Its stock price has surged approximately 58% in the year to date. Additionally, the combined holdings of Alphabet’s Class A and Class C shares form 21.1% of the ETF's assets, with both registering a 21% jump in their stock prices.
Nevertheless, the Vanguard S&P 500 Growth ETF, code-named VOOG, has outdone all others in 2024, boasting a total return exceeding 28%. The ETF, aiming to mimic the S&P 500 Growth Index’s performance, is up more than 27% this year. This index comprises S&P 500 members identified as growth stocks based on criteria such as sales growth and momentum. Currently, the ETF comprises 234 stocks, with giants like Apple, Microsoft, Nvidia, Amazon, and Meta, constituting about 45.8% of its holdings. Nvidia stands out notably, with its stock skyrocketing by 175% this year.
Since its debut in September 2010, the Vanguard S&P 500 Growth ETF has delivered an impressive average annualized total return of 16%. Helpfully, this fund’s annual expense ratio is maintained at a low 0.1%, ensuring that operational costs minimally impact returns. However, whether it remains a smart investment choice remains uncertain. One risk lies in its valuation; with the fund’s stock portfolio averaging a price-to-earnings ratio of 34.4, potential overvaluation is a concern. Although the ETF includes a wide assortment of stocks, the hefty emphasis on several key holdings means it may lack the diversification some investors prefer.
Nonetheless, a catalyst driving the ETF’s performance recently is the rising demand for artificial intelligence (AI) applications, a trend likely to persist. If you believe this demand will continue to escalate, the promising outlook for Vanguard's S&P 500 Growth ETF may still merit consideration, despite potential overvaluation concerns.
