ETFs
The S&P 500 hit a new record high last week, but these 2 ETFs have outperformed the index over the past decade
Thanks to the strength of the technology sector, these two ETFs could continue to outperform the S&P 500 index.
THE S&P500 The index recently reached new record highs. This is great news because mutual funds and exchange-traded funds (ETFs) that track the index are largely held by investors. Index ETFs are a great way for new and even more experienced investors to get exposure to the market. They offer instant diversification, require little research effort, and are generally inexpensive.
The other advantage of ETFs that track market-cap-weighted indices like the S&P 500 is that they have no emotion. They let their winners run and become a larger part of the index and their losers fall and become a smaller part. This is the exact opposite of what many investors do, which is to pay out the profits of their winning stocks and the dollar cost averaging to their losers.
Investing in the S&P 500 has proven to be an excellent strategy leading to solid returns over the long term. However, if you’re looking for even better returns, there are two market-cap-weighted index ETFs that have outperformed the S&P 500 over the past 10 years.
Vanguard S&P 500 Growth ETF
THE Vanguard S&P 500 Growth ETF (VUG -0.57%) tracks the growth subset of the S&P 500 index and owns about 200 stocks. The ETF’s top 10 holdings are similar to those of the S&P 500 Index, except that it does not hold Berkshire Hathaway.
The biggest difference, however, is that its top 10 holdings make up a much larger percentage of its portfolio, nearly 55% of the fund. For comparison, the top 10 stocks in the S&P 500 represent less than a third of the index’s total weighting. This means that the top holdings in the S&P 500 Growth ETF play a much larger role in the ETF’s performance.
This ETF is heavily weighted in technology stocks, with over 56% of the ETF invested in the sector, followed by 19% in consumer discretionary stocks. Notably, a number of companies classified as consumer discretionary are very technology-oriented, such as Amazon And You’re here.
Over the past 10 years, the Vanguard S&P 500 Growth ETF has significantly outperformed the S&P 500, generating an average annual return of 14.6% compared to 12.4% for the index.
Invesco QQQ ETF
Another fund that outperformed the S&P 500 by an even greater percentage is the Invesco QQQ ETF (QQQ -0.75%), which tracks the Nasdaq 100 Index. Its main holdings are similar to those of the Vanguard S&P 500 Growth ETF, although it does not include some stocks listed on the New York Stock Exchange such as Elie Lilly And Visa.
The fund is also heavily weighted in the technology sector, with almost 60% of its portfolio in the sector and almost 18% in consumer discretionary stocks.
This ETF has been a big winner over the past decade, producing an average annual return of 18.1%. This easily outperforms the Vanguard S&P 500 Growth ETF and the S&P 500 Index. Invesco boasts that the ETF has outperformed the S&P 500 Index 87% of the time over the past decade.
10 years ago, a $10,000 investment in the Invesco QQQ ETF would be worth more than $55,000 at the end of March. And the same investment 20 years ago would be worth a whopping $145,436.
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Technology leads the way
The main commonality between the Vanguard S&P 500 Growth ETF and the Invesco QQQ ETF is that they are both more heavily weighted in technology stocks than the S&P 500 Index. And the fact is that technology is constantly changing the world, And technology companies They thus became the biggest winners.
With the advent of artificial intelligence (AI), this trend is unlikely to slow down and may just continue to accelerate. This means that there is a good chance that these two ETFs will also outperform the S&P 500 over the next 10 years.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Berkshire Hathaway, Tesla, Vanguard Index Funds – Vanguard Growth ETF, and Visa. The Mad Motley has a disclosure policy.
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