Vanguard ETFs to Watch in 2023

The S&P 500 remains the most widely followed index in the stock market, serving as the standard for evaluating the performance of various stocks and other indexes. Essentially, if a company’s revenue is low, its performance is deemed unsatisfactory. Conversely, higher returns suggest better performance.

This year, the S&P 500 has risen by 10%, which aligns with its long-term average. Things are looking pretty good, all things considered.

However, there are two Vanguard exchange-traded funds (ETFs) that show strong momentum and could outperform the S&P this year. Each ETF has a different focus, which has, thus far, benefited their unique positions.

1. Vanguard Information Technology ETF

The Vanguard Information Technology ETF ((VGT 1.00%)) boasts 323 companies within its sector, covering a multitude of technology industries. Despite its diversity, it is quite top-heavy, with Nvidia, Apple, and Microsoft accounting for over 38% of the ETF.

Nvidia and Apple have kicked off the year strong, rising 10% and 21%, respectively, while Microsoft has dropped more than 16% as of mid-July. Still, the ETF’s overall performance has been impressive, with a 21% increase this year, largely fueled by its semiconductor holdings.

These semiconductor companies make up nearly 38% of the fund, marking some of the hottest stocks right now. Notable holdings like Micron Technology, Advanced Micro Devices, and Applied Materials contribute to nearly 11% of the ETF. Even though Applied Materials has lagged behind this year, it remains up 121% overall.

Information technology ETFs have generally outperformed, particularly with the ongoing artificial intelligence (AI) boom. However, the sources of that performance are shifting. Initially driven by major AI players like the so-called “Magnificent Seven,” the focus is now moving towards niche players, especially semiconductor companies focused on storage and memory hardware.

The increased demand for storage and memory in data centers is substantial, and companies are finding themselves in a favorable position where demand exceeds supply. There seems to be more value in smaller tech firms compared to the market giants, which can be… interesting, I guess.

This is a solid tech ETF if you can manage the focus, but it’s important to remember that Amazon, Alphabet, and Meta Platforms, while typically categorized as tech, are excluded from this ETF since they fall under different sectors.

2. Vanguard Energy ETF

The energy sector has seen a resurgence this year after a period of stagnation, primarily due to ongoing conflicts in the Middle East. Energy prices, like oil and electricity, have been climbing for most of the year, making energy stocks, quite naturally, the beneficiaries of this trend. More profits typically attract more investors, which is… something to keep in mind.

The Vanguard Energy ETF ((VDE +1.26%)) is one of the best ways to tap into this growth within the energy sector, currently the top-performing sector in the S&P 500. It holds 111 energy stocks, but like the Information Technology ETF, its performance is heavily influenced by its top holdings.

Exxon Mobil and Chevron make up over 35% of the ETF, and both have been doing well this year.

While the energy sector is performing well currently, it remains vulnerable to developments in the Middle East. Let’s be honest, the situation is a bit unstable, and this ETF might follow a similar path. Nevertheless, adding energy investments is a wise move, especially when major indexes overlook it, making it a good complement to any portfolio.

Predicting stock performance can be tricky, but it would be a surprise if the Vanguard Energy ETF doesn’t finish the year ahead of the S&P 500.