The S&P 500 is the stock market’s most popular index by a large margin and has become the de facto benchmark for measuring the performance of other stocks and indexes. If the returns are less, they’re underperforming; if the returns are higher, they’re outperforming.
So far this year, the S&P 500 is up 10%. That’s right around its long-term annual average — so far, so good, all things considered.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
There are, however, two Vanguard exchange-traded funds (ETFs) with momentum and a good chance of outperforming the S&P this year. They each have a different focus, but that has uniquely worked out in each ETF’s favor so far.
1. The Vanguard Information Technology ETF
The Vanguard Information Technology ETF (NYSEMKT: VGT) holds 323 companies from the sector that it’s named for, covering every tech industry you can imagine. But although it covers a lot of ground, it’s very top-heavy, with Nvidia, Apple, and Microsoft accounting for over 38% of the ETF.
Nvidia and Apple have had good starts to the year, up 10% and 21%, respectively, but Microsoft has been headed in the opposite direction, down over 16% (as of July 16). However, much of this ETF’s strong performance so far this year (it’s up 21%) is attributable to its semiconductor holdings.
Chipmakers account for nearly 38% of the fund, and right now, they’re some of the hottest stocks on the market. Micron Technology, Advanced Micro Devices, and Applied Materials are all top-10 holdings (nearly 11% of the ETF), and even Applied Materials — the worst performer this year — is still up 121%.
With the ongoing artificial intelligence (AI) boom, the Information Technology ETF has routinely been an outperformer, but the drivers of its outperformance have shifted. It began with major AI hyperscalers, like the “Magnificent Seven” stocks, and now it’s leaning more on niche providers, such as semiconductor companies that deal with storage and memory hardware.
Part of it is the major need for storage and memory hardware in data centers, and the lucrative position that situation has put companies in, with demand far outpacing supply. The other part is that more value has been found in smaller tech companies than in the multitrillion-dollar tech giants.
If you can stomach the concentration, this is a good tech ETF, but it’s worth noting that although companies such as Amazon, Alphabet, and Meta Platforms are considered tech companies by most people’s standards, they’re listed in other sectors and therefore not included in the Vanguard Information Technology ETF.
