The S&P 500(SNPINDEX: ^GSPC) is generally considered the best benchmark for the U.S. stock market. The consensus estimate among Wall Street analysts says the index will climb to 8,305 in the next 12 months, implying 21% upside from its current level of 6,880.
Analysts expect three market sectors to perform better during that period. They are listed below, along with the upside implied by the consensus target prices of Feb. 28.
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Information technology: 32%
Communications services: 24%
Consumer discretionary: 22%
Investors can get exposure to those stock market sectors with three index funds: the Vanguard Information Technology ETF(NYSEMKT: VGT), the Vanguard Communications Services ETF(NYSEMKT: VOX), and the Vanguard Consumer Discretionary ETF(NYSEMKT: VCR). Here are the important details.
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The Vanguard Information Technology ETF measures the performance of 320 stocks in the information technology sector, which includes three major segments: software and cloud services, technology hardware and equipment, and semiconductors and semiconductor manufacturing equipment. This index fund has an expense ratio of 0.09%.
The top five holdings in the Vanguard Information Technology ETF are:
Nvidia: 18%
Apple: 14.3%
Microsoft: 10.9%
Broadcom: 4.3%
Micron Technology: 2.3%
In the last three years, the information technology sector returned 132% (32% annually), which made it the second-best-performing sector during that period. Meanwhile, the S&P 500 achieved a total return of 82%
In the last decade, the information technology sector returned 758% (24% annually), which made it the best-performing sector during that period. Meanwhile, the S&P 500 achieved a total return of 313%.
Here’s the big picture: The information technology sector beat the S&P 500 over the last three years and the last decade, and that outperformance is likely to continue as artificial intelligence drives the market in the coming years. However, investors should be aware of the concentration risk. This index fund has more than 40% of its assets invested in three stocks, which means they factor very heavily into its performance.
The Vanguard Communications Services ETF tracks the performance of 117 stocks in the communications services sector, which is heavily weighted toward three industries: telecommunications, interactive media, and entertainment. This index fund has an expense ratio of 0.09%.
The top five holdings in the Vanguard Communications Services ETF are:
Alphabet: 25%
Meta Platforms: 24.6%
Walt Disney: 4%
Verizon Communications: 3.9%
AT&T: 3.8%
In the last three years, the communications services sector returned 170% (32% annually), which made it the best-performing sector during that period. Meanwhile, the S&P 500 achieved a total return of 82%.
In the last decade, the communications services sector returned 237% (13% annually), which made it the fifth-best-performing sector during that period. Meanwhile, the S&P 500 achieved a total return of 313%.
Here’s the big picture: The communications services sector beat the S&P 500 over the last three years but underperformed over the last decade. I think the sector will beat the S&P 500 in the years ahead as themes like AI and streaming media continue to drive the market. However, this index fund is heavily tied to Alphabet and Meta Platforms, so its performance depends in large part on those stocks.
The Vanguard Consumer Discretionary ETF tracks 285 stocks in the consumer discretionary sector, which includes two segments: manufacturing and services. The manufacturing segment covers apparel, automotive, household, leisure, and textile products; the services segment includes hotels, restaurants, and various retailers. This index fund has an expense ratio of 0.09%.
The top five holdings in the Vanguard Consumer Discretionary ETF are listed below:
Amazon: 23%
Tesla: 17%
Home Depot: 5%
McDonald’s: 3.2%
TJX Companies: 2.4%
In the last three years, the consumer discretionary sector returned 70% (19% annually), which made it the fourth-best-performing sector during that period. Meanwhile, the S&P 500 achieved a total return of 82%.
In the last decade, the consumer discretionary sector returned 240% (13% annually), which made it the fourth-best-performing sector during that period. Meanwhile, the S&P 500 achieved a total return of 313%.
Here’s the big picture: The consumer discretionary sector underperformed the S&P 500 over the last three years and the last decade. The index could outperform in the future if the economy remains resilient. But this index fund is heavily invested in Amazon and Tesla, so its performance depends in large part on those stocks.
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Trevor Jennewine has positions in Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Home Depot, Meta Platforms, Micron Technology, Microsoft, Nvidia, TJX Companies, Tesla, and Walt Disney. The Motley Fool recommends Broadcom and Verizon Communications. The Motley Fool has a disclosure policy.
