Two Vanguard Funds Positioned to Outperform the S&P 500 in the Years Ahead

According to Wall Street analysts, investors looking for growth opportunities in the next year should focus on two specific market sectors that are projected to significantly outperform the broader S&P 500 index. A median forecast among major market analysts shows the benchmark S&P 500 is expected to advance approximately 18% to around 8,200 by 2027, yet certain sector leaders are poised to deliver substantially higher returns.

Wall Street’s Outlook for Market Growth in the Next Year

As of early 2026, the median target from Wall Street analysts—as tracked by FactSet Research—points to two clear winners: the information technology sector and the consumer discretionary sector. These are the only two sectors projected to meaningfully exceed the S&P 500’s anticipated gains during this period.

The information technology industry is expected to deliver 33% in gains, while consumer discretionary companies are forecast to achieve 22% growth. These projections significantly outpace the S&P 500’s expected 18% advance, creating compelling opportunities for strategic investors seeking above-market returns.

Information Technology Fund: Capturing 33% Growth Potential

The Vanguard Information Technology ETF (ticker: VGT) tracks 320 companies across the technology sector, including software and cloud services, hardware manufacturers, and semiconductor producers. This fund provides concentrated exposure to some of the world’s most influential tech companies.

The fund’s largest holdings reveal its significant concentration in mega-cap technology leaders:

• Nvidia: 17.4% of fund holdings
• Apple: 14.9%
• Microsoft: 12.1%
• Broadcom: 4.4%
• Palantir Technologies: 1.9%
• Advanced Micro Devices: 1.7%
• Oracle: 1.6%
• Micron Technology: 1.6%
• Cisco Systems: 1.5%
• IBM: 1.3%

The fund operates with an exceptionally low expense ratio of just 0.09%, making it cost-efficient for long-term holding. The current valuation sits at 39 times earnings, which analysts consider reasonable given that technology companies are anticipated to report average earnings growth of 24% annually through 2027. This combination of attractive valuations and strong growth prospects—particularly driven by increased artificial intelligence spending—positions the fund as a compelling choice for growth-oriented investors.

However, tech stocks historically experience greater volatility during market downturns. During the last market correction, this fund underperformed the S&P 500 by 8 percentage points, and during the last bear market, it lagged by 9 percentage points. Despite these periodic setbacks, the information technology sector has been the strongest-performing market sector over the past decade, delivering a total return of 776%—equivalent to 24% annually.

Consumer Discretionary Fund: Tapping 22% Upside Potential

The Vanguard Consumer Discretionary ETF (ticker: VCR) holds 288 stocks across consumer-focused industries, including manufacturing segments (apparel, automotive, household goods, leisure products) and services segments (hospitality, dining, and retail).

This fund’s top holdings demonstrate significant exposure to category-defining companies:

• Amazon: 21.1% of fund holdings
• Tesla: 18.1%
• Home Depot: 4.6%
• McDonald’s: 3.2%
• Booking Holdings: 2.6%
• TJX Companies: 2.5%
• Lowe’s Companies: 1.8%
• Starbucks: 1.4%
• MercadoLibre: 1.3%
• DoorDash: 1.3%

This fund also features a competitive 0.09% expense ratio and currently trades at 29 times earnings. The valuations reflect the market’s confidence in the sector’s anticipated 12% annual earnings growth through 2027. Consumer discretionary strength depends on a healthy economic environment, and Wall Street analysts are optimistic about consumer spending trends in the next year.

Like its technology counterpart, consumer discretionary stocks face heightened volatility during economic contractions. The fund underperformed the S&P 500 by 5 percentage points during the last market correction and by 7 percentage points during the last bear market. Nevertheless, this sector ranks as the fourth-best performing market sector over the past decade, achieving a 311% total return—equivalent to 15% annually.

Managing Concentration Risk in Your Portfolio

Both funds present a significant concentration challenge that investors must address carefully. In the Vanguard Information Technology ETF, just three stocks—Nvidia, Apple, and Microsoft—represent 44% of the fund’s total weight. Similarly, in the Vanguard Consumer Discretionary ETF, Amazon, Tesla, and Home Depot account for 43% of fund performance.

Investors holding substantial positions in either fund should seriously consider portfolio diversification strategies. One approach involves adding exposure to the financials, industrials, and communications services sectors, all of which demonstrated solid performance over the past decade. Alternatively, more risk-averse investors might explore index funds tracking the consumer staples, healthcare, and utilities sectors—these tend to provide downside protection during economic slowdowns and can offset the volatility of growth-focused holdings.

Making Your Investment Decision

The case for these two Vanguard funds rests on Wall Street’s conviction that technology and consumer discretionary sectors will drive market returns in the next year and beyond. The combination of reasonable current valuations, strong projected earnings growth, and historically dominant sector performance creates an attractive investment thesis.

Before committing capital, however, carefully evaluate your own risk tolerance, time horizon, and portfolio composition. Consider whether your overall strategy would benefit from the concentrated growth potential of these sector funds, balanced against the diversification benefits of broader market exposure. Thoughtful portfolio construction—combining concentrated opportunities with defensive positions—often yields the most sustainable long-term wealth accumulation.