Tech ETF up 23% YTD as AI drives growth stocks past S&P 500

The Vanguard Information Technology ETF (VGT) has emerged as a standout performer in 2025, gaining 23% year to date—more than double the S&P 500's rise of more than 16%. This outperformance comes at a time when the broader fund industry is struggling: according to S&P Global's annual scorecard, 79% of large-cap mutual funds underperformed the S&P 500 in 2025 alone. VGT's success reflects the market's current dominance by growth stocks, particularly those tied to artificial intelligence.

The fund, which has tracked the MSCI US Investable Market Information Technology 25/50 Index since its inception in 2010, holds 321 components across U.S. technology stocks—including large-, mid-, and small-cap companies in software, hardware, and semiconductors. At least 80% of the fund's assets are required to remain in U.S. technology stocks. The top five holdings—Nvidia, Apple, Microsoft, Micron Technology, and Broadcom—represent nearly half the fund's total assets, giving investors broad exposure to the technology sector without the risk of betting on a single stock. As a weighted passive index fund, the ETF's components are automatically rebalanced based on the index, with underperforming stocks sold off if they no longer meet the fund's criteria, which minimizes the risk of holding a concentrated portfolio.

VGT's long-term track record is striking: it has delivered a 25.6% annualized 10-year return since inception and stands as Vanguard's best-performing ETF over that decade. The article attributes the fund's expected continued outperformance to the ongoing dominance of AI in the technology sector and an anticipated continuation of the AI cycle. However, the analysis includes a cautionary note: growth-focused ETFs and high-growth tech stocks tend to fall much harder during bear markets than the broader index. The article notes that while bull markets are longer and more frequent than bear markets over time, allowing growth ETFs to come out ahead, investors must maintain a long-term perspective and be prepared to hold through inevitable downturns for maximum success.

The Vanguard Information Technology ETF's outperformance reflects a broader market pattern: in 2025, despite 79% of large-cap mutual funds underperforming the S&P 500, growth-focused ETFs have thrived by concentrating in the technology stocks driving the market's rally. VGT's 23% year-to-date gain—more than double the S&P 500's 16%+ rise—is anchored in the fund's heavy exposure to artificial intelligence, the sector fueling stock prices among its top five holdings (Nvidia, Apple, Microsoft, Micron Technology, Broadcom). The fund's structure—a weighted passive index with 321 components rather than a handful of positions—allows investors to capture this AI-driven upside while spreading risk across software, hardware, and semiconductor companies of varying market capitalizations. However, this same concentration in growth stocks that soars during bull markets has a dark side: history shows growth ETFs fall sharply during bear markets. The article notes that over time, because there are more and longer bull markets than bear markets, growth ETFs tend to come out ahead, but only for investors with the discipline to hold through downturns.

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