Vanguard ETFs: A Portfolio Manager’s View

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The S&P 500 (^GSPC 0.35%) is a mosaic of 11 stock market sectors. FactSet Research, with its methodical aggregation of median target prices, offers a bottom-up forecast. By December 5, the market’s gaze turned to information technology (21%) and materials (18%), as if these sectors might yet deliver salvation. Investors, ever hopeful, might consider the Vanguard Information Technology ETF (VGT +0.87%) and the Vanguard Materials ETF (VAW 1.20%). Here, the details unfold.

The Tech Sector’s Gilded Hopes

The Vanguard Information Technology ETF, tracking 314 U.S. companies, leans heavily on semiconductors, software, and electronics hardware. Its expense ratio of 0.09% is a quiet tax on ambition. The five largest holdings-Nvidia (18.1%), Apple (14.2%), Microsoft (12.9%), Broadcom (4.4%), and Palantir (2.1%)-are not merely stocks but totems of an era. The sector trades at 28.6 times forward earnings, a modest premium to its five-year average of 27.2 and a more significant one to the 10-year average of 24.7. Yet, Wall Street’s estimate of 26% earnings growth next year tempers the gloom.

Over the past decade, information technology has outperformed the S&P 500 by 460 percentage points, a feat that reads like a parable of hubris and reward. The sector’s 2,000% return against the S&P 500’s 700% over two decades is a testament to its peculiar alchemy. Artificial intelligence, that siren song of progress, may yet sustain this momentum. Philippe Laffont, a hedge fund manager whose 94-point outperformance over three years is both a marvel and a warning, envisions technology stocks claiming 75% of the S&P 500. Such dreams, however, rest on the fragile pillars of innovation and market faith.

Yet, the ETF’s concentration in Nvidia, Apple, and Microsoft-45% of its weight-is a quixotic bet. Should any falter, the fund’s performance might resemble a symphony missing its principal instruments. A prudent investor might pause, favoring the S&P 500’s broad embrace over the narrow focus of a sector. But if one must choose, the Vanguard Information Technology ETF remains a flawed masterpiece.

The Materials Sector’s Quiet Struggle

The Vanguard Materials ETF, with 108 U.S. companies in specialty chemicals, industrial glass, and construction materials, charges 0.09% annually. Its largest positions-Linde (15%), Newmont (6.8%), Sherwin-Williams (6.2%), CRH (6.1%), and Ecolab (5%)-are industrious but unglamorous. The sector trades at 18.8 times forward earnings, a modest premium to its historical averages. Yet, the consensus forecasts a meager 5% earnings growth in 2026, a figure that whispers of stagnation.

Historically, materials have lagged. While the S&P 500 compounded at 10.9% annually over two decades, materials managed a mere 8%. This underperformance, paired with high valuations, suggests a sector content with a quiet, uncelebrated existence. One might argue that materials are the unsung heroes of the economy, but their returns rarely reflect such nobility. For the investor seeking solace, the S&P 500’s broad shoulders remain a safer harbor.

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The market, like life, is a tapestry of hopes and disappointments. These ETFs offer glimpses into sectors where ambition and arithmetic collide. Yet, the future remains an enigma, its answers buried in the soil of uncertainty. As the calendar turns toward 2026, we are left to ponder whether our choices will be vindicated-or merely remembered. ♟️

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2025-12-09 12:17