Wall Street Analysts: Invest in 2 Vanguard Index Funds to Outperform S&P 500
Recent analyses by Wall Street analysts suggest that investing in specific Vanguard index funds may provide opportunities to outperform the S&P 500. The forecasts indicate that the S&P 500 could return 39% over the next five years. In contrast, the S&P Mid-Cap 400 and the S&P Small-Cap 600 are projected to deliver slightly higher returns of 41% and 42%, respectively.
Vanguard S&P Mid-Cap 400 ETF
The Vanguard S&P Mid-Cap 400 ETF focuses on 400 mid-cap stocks, defined as companies with market values between $8 billion and $22.7 billion. This fund incorporates both value and growth stocks across various sectors, with significant allocations to the following:
- Industrials: 24%
- Financials: 15%
- Technology: 14%
The fund’s top holdings include:
- Ciena: 1%
- Coherent: 0.9%
- Lumentum: 0.8%
- Curtiss-Wright: 0.7%
- Flex: 0.7%
Over the past 15 years, the Vanguard S&P Mid-Cap 400 ETF returned 365%, averaging an annual return of 10.8%. Meanwhile, the S&P 500 returned 591% or 13.7% annually during the same timeframe. The underperformance of the mid-cap fund can be partly attributed to its lower exposure to the technology sector, which has shown robust growth.
Expense Ratio
This ETF carries an expense ratio of 0.07%, which translates to an annual cost of $7 for every $10,000 invested. While it offers exposure to mid-cap stocks, there may be challenges in outperforming the S&P 500 in the near future.
Vanguard S&P Small-Cap 600 ETF
The Vanguard S&P Small-Cap 600 ETF tracks 600 small-cap stocks, categorized as companies with market values from $1.2 billion to $8 billion. It similarly includes both value and growth stocks, primarily concentrated in the following sectors:
- Financials: 18%
- Industrials: 18%
- Consumer discretionary: 13%
The leading holdings are:
- Solstice Advanced Materials: 0.6%
- Arrowhead Pharmaceuticals: 0.6%
- Moog: 0.5%
- LKQ: 0.5%
- InterDigital: 0.5%
This fund also yielded a 360% return over the past 15 years, averaging 10.7% annually. Although it underperformed the S&P 500 significantly, it surpassed the Russell 2000 by 60 percentage points due to its more rigorous eligibility criteria.
