These three growth-stock ETFs present an alternative strategy for those looking to navigate potential declines in the stock market.
The S&P 500 has surged by 78% since early 2023, significantly outpacing the historical average return of 9% to 10% per year. For investors concerned about a possible drop in stock prices by 2026, the temptation to sell off growth stocks in favor of value stocks may become strong. But making drastic changes to your investment strategy based solely on intuition might cause you to forfeit long-term gains. Plus, attempting to time the market can be tricky; you have to decide both when to sell and when to reinvest—which can leave you with unallocated funds.
A more sensible approach might be to tweak your portfolio according to your risk appetite and financial objectives, rather than resorting to extreme measures. By opting for a growth-focused exchange-traded fund (ETF) that contains a wide range of stocks, you can achieve both exposure and diversification. This setup means that if a few companies experience a sharp decline, they won’t wreak havoc on your entire portfolio.
Take, for instance, the Vanguard S&P 500 Growth ETF, Vanguard Information Technology ETF, and Vanguard Dividend Appreciation ETF. These funds could be wise choices even in the event of a market crash next year.
1. Vanguard S&P 500 Growth ETF
If you’re looking to outperform the S&P 500, this ETF puts a strong emphasis on growth stocks.
A hefty 65.3% of the ETF is concentrated in just 15 companies, which include Nvidia, Microsoft, Apple, Alphabet, Broadcom, Amazon, Meta Platforms, Tesla, Eli Lilly, Visa, JP Morgan Chase, Netflix, Palantir Technologies, Mastercard, and Oracle.
If the stock market does experience a downturn in 2026, it’s likely that the leaders we see today will be the ones leading that decline, primarily due to valuation worries and a slowdown in AI spending. This makes the Vanguard S&P 500 Growth ETF particularly sensitive to downturns.
But you might wonder why you should consider investing in ETFs at all. Well, it depends on your outlook on market conditions. If your goal is to fortify your portfolio with value stocks that are resilient, this ETF might not fit the bill.
However, if you’re aiming to create a diversified collection of growth stocks with the intention of holding for at least three to five years, then the Vanguard S&P 500 Growth ETF could be an excellent option.
2. Vanguard Information Technology ETF
This fund is unique among Vanguard’s sector offerings for having outperformed the S&P 500 over the last decade.
The tech sector alone constitutes 34.6% of the S&P 500 and plays a significant role in driving the index upwards. Investors who believe that this momentum will persist—even during a market decline—should take a closer look at this ETF.
Concentration in just a few stocks, such as Nvidia, Apple, Microsoft, and Broadcom, while often seen as risky, has historically resulted in solid performance for this fund.
Despite the seemingly higher risk, the Vanguard Tech ETF’s price-to-earnings ratio sits at 39.3, contrasting with the S&P 500’s 28.8 ratio, suggesting a market that could be overreaching.
3. Vanguard Dividend Appreciation ETF
This ETF yields a modest 1.6%, which is only slightly above the S&P 500’s yield of 1.1%. The strategy here isn’t purely about generating current yields; it’s more focused on investing in companies that are likely to experience earnings growth in the future.
The ETF’s top three holdings include Broadcom, Microsoft, and Apple, which don’t offer high dividend yields but are known for returning value to shareholders through dividend increases and buybacks, alongside solid growth potential.
Eli Lilly, the fifth-largest holding in this ETF, may not boast a high dividend yield, but its stature as a leading pharmaceutical company comes from its vast portfolio and a promising pipeline of new drugs.
The Dividend Appreciation ETF prioritizes companies that rely on dividends to reward shareholders while also holding a clear trajectory for future growth—this sets it apart from a yield-focused strategy. Currently, its largest sector allocation is Technology, comprising 28.5%.
Buy and hold during turbulent times
Remaining level-headed and patient is just as critical as selecting winning stocks. Investors who can keep their composure during downturns tend to unlock greater compounding benefits over time.
While growth-focused ETFs like the S&P 500 Growth ETF, Information Technology ETF, and Dividend Appreciation ETF might lag during broader market declines, they have the potential to outperform over the long haul.
There’s also a psychological benefit to holding these growth ETFs during market dips; it can feel easier to manage a broad portfolio through a single ETF than to keep tabs on individual companies.
Of course, you should feel confident about the stocks that comprise these ETFs. With major players like Microsoft, Apple, and Broadcom featured in several of these funds, they might be worth considering for those looking to build a tech-centered portfolio.
