Wall Street analysts predict that two Vanguard funds will outperform the S&P 500 in the coming year. These predictions suggest that the S&P 500 could rise 18% to reach 8,200, according to FactSet Research. Particularly, the information technology sector is expected to lead with a projected gain of 33%, while the consumer discretionary sector is forecasted to climb by 22%.
Vanguard Funds to Watch
Investors aiming for exposure to these sectors can consider two specific Vanguard exchange-traded funds (ETFs): the Vanguard Information Technology ETF and the Vanguard Consumer Discretionary ETF.
Vanguard Information Technology ETF (VGT)
The Vanguard Information Technology ETF, which tracks 320 stocks in the technology sector, is anticipated to have an impressive 33% upside. It encompasses key segments such as software, hardware, and semiconductors.
- Top 10 Holdings:
- Nvidia: 17.4%
- Apple: 14.9%
- Microsoft: 12.1%
- Broadcom: 4.4%
- Palantir Technologies: 1.9%
- Advanced Micro Devices: 1.7%
- Oracle: 1.6%
- Micron Technology: 1.6%
- Cisco Systems: 1.5%
- IBM: 1.3%
While technology stocks can be volatile, the Vanguard Information Technology ETF has delivered a total return of 776% over the past decade, averaging 24% annually. Its expense ratio is a competitive 0.09%, making it an attractive investment, especially with anticipated growth driven by rising artificial intelligence investments.
Vanguard Consumer Discretionary ETF (VCR)
The Vanguard Consumer Discretionary ETF tracks 288 stocks within its sector and is projected to achieve a 22% increase. This ETF includes both manufacturing and services segments.
- Top 10 Holdings:
- Amazon: 21.1%
- Tesla: 18.1%
- Home Depot: 4.6%
- McDonald’s: 3.2%
- Booking Holdings: 2.6%
- TJX Companies: 2.5%
- Lowe’s Companies: 1.8%
- Starbucks: 1.4%
- MercadoLibre: 1.3%
- DoorDash: 1.3%
Over the last decade, the Vanguard Consumer Discretionary ETF yielded a total return of 311%, averaging 15% annually. Its expense ratio stands at a reasonable 0.09%. Analysts project consumer discretionary firms will report 12% annual earnings growth through 2027, supporting the fund’s positive outlook.
Risks and Concentration Considerations
Investors should be mindful of concentration risk within both ETFs. For instance, Nvidia, Apple, and Microsoft constitute 44% of the Vanguard Information Technology ETF’s performance. Similarly, Amazon, Tesla, and Home Depot account for 43% of the Vanguard Consumer Discretionary ETF.
Diversifying portfolios by including index funds that target other sectors like financials or industrials could mitigate risk. Defensive approaches could involve index funds focused on consumer staples or healthcare sectors, traditionally more resilient during economic downturns.
In summary, the Vanguard Information Technology and Consumer Discretionary ETFs are well-positioned to outperform the S&P 500, making them noteworthy options for investors in 2024.
