The Vanguard S&P 500 Growth ETF (VOOG), with its high-concentration allocation to leading growth stocks, has historically outperformed the S&P 500 Index over the long term. Although some of its heavyweight holdings underperformed in the first half of the year, the ETF is poised to regain momentum in the second half, driven by currently lower valuation levels and the strong performance of its artificial intelligence-related positions, thereby extending its excess return over the benchmark index.
The S&P 500 Growth Index selects constituent stocks based on stock momentum and the sales growth of the related companies. As a result, the index holds significant positions in the “Magnificent Seven” stocks—Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG), Amazon (AMZN), Tesla (TSLA), Meta Platforms (META), and Microsoft (MSFT).
The total market capitalization of these seven companies stands at $21 trillion, accounting for 34.3% of the total market cap of the S&P 500 Index. However, within the Vanguard S&P 500 Growth ETF, their weight in market cap is even higher, reaching 50.8%.
With the exception of Alphabet, the remaining stocks in the “Magnificent Seven” all underperformed the S&P 500 Index in the first half of 2026. The worst performer was Microsoft, with a decline of as much as 22.9%. Given the ETF’s substantial exposure to these stocks, it has been no small feat for it to keep pace with the S&P 500 Index this year. Nonetheless, the ETF also holds significant positions in AI infrastructure stocks such as Micron Technology, Advanced Micro Devices, Lam Research, and Applied Materials, all of which more than doubled in the first half, thereby offsetting part of the shortfall.
From its inception in 2010 through June 30, the Vanguard S&P 500 Growth ETF delivered a compound annual return of 16.9%, comfortably surpassing the average annual return of 15.1% for the S&P 500 Index over the same period. Based on this track record alone, the ETF would appear poised to widen its gap over the S&P 500 for the remainder of 2026, though past performance does not always guarantee future results.
To achieve strong returns over the next six months, the Vanguard ETF will require significant contributions from the “Magnificent Seven” stocks, as they constitute more than half of the ETF’s value. The good news is that most of these stocks are currently quite inexpensive.
As of June 30, Nvidia’s stock traded at a price-to-earnings ratio of just 30.6 times, less than half its ten-year average. Meta, Microsoft, Alphabet, and Amazon all have P/E ratios below 30 times, making them considerably cheaper than the Nasdaq 100 Technology Index, which trades at 34.1 times earnings. All four companies are expected to deliver earnings growth in 2026 and 2027, rendering them even more affordable on a forward-looking basis.
Tesla is the only stock in this group that could be considered genuinely expensive, primarily due to the company’s contracting earnings. Fortunately, its weight within the Vanguard ETF is much lower than that of its peers, so it will not pose a major drag on performance.
In summary, Wall Street is unlikely to overlook the value offered by these tech giants for an extended period. They rank among the highest-quality companies globally and stand at the forefront of rapidly growing industries such as artificial intelligence. As such, they are set to stage a reversal in the second half of 2026, leading the Vanguard S&P 500 Growth ETF to once again deliver an annual return that outpaces the broader market.
