2 Unstoppable Vanguard ETFs to Buy for $950 During S&P 500 Bull Market

The S&P 500 it set a new all-time high in early January 2024, providing final confirmation that the bull market (which began when the index bottomed in October 2022) was underway. Since then, the technology sector has continued to lead the growth market, led by trillion dollar giants such as Nvidia, Microsoftand Apple.

The S&P 500 rose 15% in the first half of this year, with the 156% gain in Nvidia shares contributing about a third of the entire return. In other words, investors with no exposure to the technology sector are likely to underperform the broader market. Buying exchange-traded funds (ETFs) that hold a high concentration of tech stocks can be a simple way to get that exposure.

Here’s why investors with $950 to spare might want to put it toward buying a stock in the Vanguard Growth ETF (VUG -2.96%) and a share of Vanguard Information Technology ETF (VGT -4.40%).

1. Vanguard Growth ETF

The Vanguard Growth ETF holds 188 different stocks, but 59.8% of the fund is allocated to the technology sector. For context, the S&P 500 assigns a 31.4% weight to technology, so this ETF is significantly concentrated by comparison.

That can be a blessing and a curse. When tech stocks lead the market, this ETF easily outperforms the S&P 500. But any sell-off in the tech sector leads to a much steeper relative decline in the ETF.

The top five holdings in the growth ETF are exactly the same as the top five in the S&P 500. However, note the difference in weights:

Data source: Vanguard. Portfolio weightings are accurate as of July 31, 2024 and are subject to change.

All five companies are betting big on artificial intelligence (AI). Apple recently unveiled its new Apple Intelligence software, which was developed in partnership with ChatGPT creator OpenAI. It will transform existing apps like the Siri voice assistant and add new capabilities to other apps like iMessage and Mail. With more than 2.2 billion active devices worldwide, Apple could soon become the largest distributor of consumer AI.

Microsoft also used OpenAI technology to develop its Copilot virtual assistant. But Microsoft’s bigger AI opportunity may be in the cloud, as its Azure platform is quickly becoming the go-to destination for companies looking to develop AI applications.

Nvidia’s graphics processing units (GPUs) for the data center are at the heart of the entire AI revolution. They are used by almost every company developing AI, including OpenAI, Microsoft, Amazon and Meta, to name a few. Demand for GPUs continues to outstrip supply, driving Nvidia’s revenue and earnings up.

Outside of its top five, the Growth ETF holds several other major tech stocks. These include Alphabet, adzeand Advanced microdevices. But it provides a splash of diversification because non-tech stocks like it Eli Lilly, Visaand Costco Wholesale are among the ETF’s top 20 stocks.

The Growth ETF has generated a compounded annual return of 11.3% since its inception in 2004, which beats the average annual return of 10.1% in the S&P 500 over the same period. However, the proliferation of technologies such as enterprise software, cloud computing and AI have propelled the ETF to a compounded annual gain of 15.3% over the past 10 years. That’s an even bigger performance than the S&P 500’s 13.2% annualized return over the past decade.

2. Vanguard Information Technology ETF

The Information Technology ETF could be a good option for investors who are comfortable with more risk in exchange for even greater exposure to top names in the S&P 500. It holds 317 different stocks across 12 segments of the technology sector, in special.

The semiconductor sector is the largest in this ETF, with a 29.1% weighting, which is perhaps not a surprise given the rise in value of companies such as Nvidia and AMD over the past year.

The composition of its top five holdings is slightly different from that of the S&P 500. But its top three holdings are the same, with substantially higher weights:

Data source: Vanguard. Portfolio weightings are accurate as of July 31, 2024 and are subject to change.

Stocks like AdobeAMD and Oracle are in the top 10 of this ETF, while they are well below the S&P 500. This makes the ETF’s performance highly dependent on the success of technologies like AI, as those companies are increasingly investing there of money.

The Information Technology ETF has delivered a compounded annual return of 13.5% since its inception in 2004, so it has outperformed both the Growth ETF and the S&P 500. The same is true of its more recent performance , with impressive compound annual earnings. of 20.2% in the last 10 years.

A minor downside to the Information Technology ETF is the 0.1% expense ratio, which is the proportion of the fund deducted each year to cover management costs. It’s slightly more expensive to own than the growth ETF, which has an expense ratio of 0.03% and can negatively impact returns over time. However, it’s still substantially cheaper than similar funds in the industry, according to Vanguard, which charge an average of 0.97%.

This ETF could be volatile, given that 47.1% of its entire portfolio value is invested in just three stocks, so it’s a good idea to own it as part of a balanced group of other ETFs. Alternatively, it could be a good addition to any portfolio that is currently underweight the tech sector.