Investors following my long-running Hot Hands strategy can thank Growth Index (VIGAX) for the past two years. The tech-heavy index fund beat Total Stock Market Index (VTSAX) in 2024—and it’s on track to do it again in 2025.
Over the past two calendar years (through November), Growth Index outpaced the broad index fund by six percentage points a year—27.4% to 21.3%.
That’s a step in the right direction for a strategy that, frankly, has run more cold than hot for more than a decade. Hot Hands has worked over the long run—but only for investors willing to endure stretches where it very much didn’t.
I’m sticking with the Hot Hands strategy for another year. And yes, I’ve been following it with my own money for years. I wouldn’t write to you about it if I weren’t willing to do that.
Still, I don’t expect you to follow my lead mindlessly.
The Hot Hands strategy has a strong theoretical foundation and a long performance record that’s anything but smooth. Before you decide whether it deserves your hard-earned dollars, you need the context—the good and the uncomfortable stretches in between.
Let’s start at the beginning.
The Simple Rules Behind Hot Hands
My mentor, Dan, first wrote about the Hot Hands strategy in May 1995. He and I have followed the same basic rules ever since—updating the eligible fund list as Vanguard introduced new offerings.
The idea behind the Hot Hands strategy is straightforward: What has outperformed tends to keep outperforming—until market leadership changes.
In the industry parlance, this is known as momentum investing. It has plenty of academic backing and more than a few practitioners—including Vanguard, which launched U.S. Momentum Factor ETF (VFMO) in 2018. I’ll compare that fund to Hot Hands later in the article.
While some momentum strategies rely on complex models and frequent trading, we’ve always kept things simple. Here’s the one-sentence description of my Hot Hands strategy:
Buy the prior year’s best-performing diversified Vanguard stock fund and hold it for a year.
That’s it.
To keep the strategy focused on broad, persistent market trends, I exclude certain funds from consideration. Specifically, Hot Hands does not include:
- Sector funds
- Regional foreign funds
- Duplicate index funds
- Balanced funds
- Alternative funds
- Bond funds
- Money market funds
The goal isn’t to chase short-term fads or swing wildly between narrow slices of the market. It’s to capture sustained momentum across diversified stock portfolios.
That’s also why bonds and cash are not part of the strategy. Hot Hands isn’t meant to be an all-in or all-out timing model. Yes, it involves trading once a year—but it still adheres to the principle of spending time in the market rather than trying to time the market.
To avoid muddying the waters, I also eliminate duplicate funds. For example, while I include Growth Index, I exclude S&P 500 Growth ETF (VOOG) and Russell 1000 Growth ETF (VONG). All three cover essentially the same territory—there’s no reason to count them separately.
Finally, I include diversified international and global stock funds. Many U.S. funds already invest overseas, and global funds simply represent another diversified slice of the world’s equity markets. Excluding them would be arbitrary.
You’ll find the full list of eligible funds in the appendix. I’ve also added Vanguard’s new actively managed ETFs to the lineup—though they won’t enter the running until late 2026.
Hot Hands by the Numbers
I’ve stuck with Hot Hands despite a few painful stretches because of its long-term record.