The Vanguard S&P 500 Growth ETF (VOOG 1.44%) is an exchange-traded fund (ETF) that tracks the performance of the S&P 500 Growth index. The Growth index holds 208 of the best-performing growth stocks from the regular S&P 500 index, assigning much higher weightings to tech powerhouses like Nvidia.
The Vanguard S&P 500 Growth ETF soared by 35.8% in 2024, crushing the 25% gain in the S&P 500. It marked the continuation of a long-term trend, because the ETF has averaged a higher return than the S&P 500 since it launched in 2010.
With that said, the stock market is in the throes of a brutal sell-off right now, triggered by the sweeping tariffs announced by U.S. President Donald Trump last week. The Vanguard S&P 500 Growth ETF is down 17% year to date, so it's underperforming the S&P 500, which has declined by 14% so far.
But here's why I predict the ETF will bounce back and ultimately beat the index yet again in 2025.
Image source: Getty Images.
The recent sell-off might be an overreaction
The top five holdings in the Vanguard S&P 500 Growth ETF account for about 34% of the total value of its portfolio, and each of them is at the forefront of cutting-edge technologies like artificial intelligence (AI):
|
Stock |
Vanguard ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
11.88% |
|
2. Apple |
6.52% |
|
3. Microsoft |
5.95% |
|
4. Meta Platforms |
5.65% |
|
5. Amazon |
4.47% |
Data source: Vanguard. Portfolio weightings are accurate as of Feb. 28, 2025, and are subject to change.
As of this writing, those five stocks are down by an average of 21% in 2025. Therefore, they are collectively underperforming the S&P 500 by a wide margin, hence the steep decline in the Vanguard S&P 500 Growth ETF versus the index.
Last week, President Trump imposed a sweeping 10% tariff on all imported goods from America's trading partners. He then announced a series of "reciprocal" tariffs targeting countries with the biggest trade surpluses with the U.S. As a result, goods imported from Europe, Taiwan, and China will be subject to additional tariffs of between 20% and 34%.
However, semiconductors are exempt, which means Nvidia's industry-leading AI data center chips shouldn't be directly affected. Moreover, digital products like software and other subscription services aren't facing any tariffs at all (for now), much to the benefit of Microsoft and Meta Platforms. That's also good news for Amazon, because it operates the world's largest cloud computing platform, but its e-commerce segment will likely be affected because it imports products from all over the world.
That leaves Apple, which is one of the biggest casualties of Trump's tariffs. It manufactures around 90% of its iPhones in China, and some estimates suggest the price of the latest "16 Pro Max" version of the device could soar to $2,300, from $1,599 previously. That could put a serious dent in demand this year, triggering a potential drop in the company's revenue.
Outside of its top five holdings, there are a number of other stocks in the ETF that could avoid the direct effects of Trump's tariffs. Alphabet, Visa, Mastercard, Netflix, and Oracle come to mind, because they primarily sell software or other digital products and services.
To be clear, even if companies aren't directly affected by the tariffs, they could still suffer from indirect headwinds like slowing economic growth, which will hurt demand for their products. Plus, we are still awaiting potential retaliatory steps from America's trading partners, which could result in damaging penalties on U.S. exports.
A stellar track record against the S&P 500
I think that there are two ways the Vanguard S&P 500 Growth ETF can bounce back in the current environment. First, it's possible that many countries will negotiate to reduce some of the reciprocal tariffs so we return to status-quo trading, which could restore investor sentiment. Alternatively, investors might soon realize what I highlighted above -- a significant portion of the fund's portfolio isn't directly affected by tariffs, which could pave the way for a gradual recovery.
But let's examine the big picture. The Vanguard S&P 500 Growth ETF has delivered a compound annual return of 15.3% since it was established in 2010, which is better than the average annual gain of 13.8% in the S&P 500 over the same period. In other words, the ETF outperformed the S&P 500 in spite of several economic shocks, including the tail end of the Global Financial Crisis, Trump's 2018 and 2019 tariff policies, the COVID-19 pandemic, and even the inflation surge in 2022.
Simply put, investors flock to stocks like Nvidia, Apple, Microsoft, Meta, and Amazon because of their extremely high quality. The companies generate solid growth and reliable earnings, and they have enough scale to weather most economic storms. Not to mention, they now lead the emerging AI industry, which PwC thinks could add a whopping $15.7 trillion to the global economy by 2030.
As a result, when the dust settles from the recent tariff turmoil, I think the Vanguard S&P 500 Growth ETF will emerge to beat the S&P 500 yet again in 2025.
