The Top-Performing Vanguard ETF of the Year: Analyzing Its Potential for 2025

Many investors are familiar with the Vanguard S&P 500 ETF, which is one of the simplest ways to invest in the overall market. However, Vanguard offers a diverse range of more than 80 different exchange-traded funds (ETFs) that cater to various investment strategies and goals.

This year, Vanguard's growth ETFs have shown impressive performance, which is common during times of positive market trends. Typically, when the S&P 500 (^GSPC 1.09%) rises, growth stocks outperform the whole market. Conversely, when the market declines, growth stocks often underperform. In contrast, value stocks tend to gain when the market is down but might not do as well during market upswings.

Among the many growth ETFs that Vanguard offers, the standout performer this year is the S&P 500 Growth ETF (VOOG 1.18%). Let’s delve into the reasons for its success and explore whether it’s worth buying for 2025.

Growth and Diversification: A Winning Combination

The S&P 500 Growth ETF, like all of Vanguard's offerings, is designed to track a specific index. In this case, it follows the S&P 500 Growth Index, which comprises approximately 230 of the highest-growth stocks in the S&P 500.

While this ETF is not as broadly diversified as the full S&P 500, having 230 stocks still provides a good level of diversification, which offers some safety against market fluctuations. Additionally, since it is passively managed, investors do not need to worry about selecting individual stocks or frequently adjusting their holdings.

Notably, this ETF has a low expense ratio of 0.1%, particularly low compared to similar funds that often charge around 0.95%. Although it is among Vanguard’s higher-priced ETFs, its strong performance has justified the costs, as it has surged 36% in 2024, exceeding the 25% gain of the overall market and outperforming all of Vanguard’s 88 ETFs.

Outperforming the Market: A Strong Track Record

As noted, it is expected for growth stocks to excel during strong market conditions. However, the S&P 500 Growth ETF has not only performed well this year but also boasts an impressive long-term performance, with an annualized gain of 16.4%, surpassing the traditional S&P 500 ETF’s annualized return of 14.9% during comparable periods.

This performance can be illustrated by looking at hypothetical investment amounts, such as $10,000 put into each ETF when they were initiated.

Is 2025 a Repeat Performance?

The ETF’s structure means that its largest holdings, which include names such as Apple, Nvidia, Microsoft, Amazon, and Meta Platforms, dominate its total value. These five companies make up approximately 45.8% of the ETF’s assets, while a significant number of stocks contribute only slightly to the overall portfolio.

Currently, these major companies are thriving and have substantial opportunities in the field of artificial intelligence (AI). Investing in growth ETFs offers exposure to these lucrative trends while reducing the risks associated with investing in individual stocks. Additionally, the ETF includes more stable companies, such as Visa and Costco Wholesale, providing a balanced approach to risk. Vanguard rates this ETF with a risk level of 4 out of 5—a high rating, but not the highest possible.

Given the current technological advancements in AI, it is reasonable to believe that the S&P 500 Growth ETF will continue to see growth through 2025. Its robust long-term performance suggests that it remains a solid investment option for various investors, regardless of how the upcoming year unfolds.

Vanguard, ETF, Investment