Executive Summary: Technology stocks have dominated over the past two decades, but that doesn’t mean now’s the time to buy in. This week, I evaluate Vanguard’s sector index funds from a long-term investor’s perspective—spotlighting where returns have outpaced the market and where risk may outweigh the reward.
Over the past decade, the best and worst-performing Vanguard stock funds have one thing in common: they were both sector funds.
Tech stocks soared, compounding at a 21.4% annual clip. Energy stocks, meanwhile, barely got off the ground—returning just 4.8% per year. But here’s the twist: Despite finishing at the bottom of the pile over the past decade, energy stocks delivered the strongest two-year run of any sector, surging 154% in 2021 and 2022.
That gap in returns and the seemingly contradictory energy stat capture both the promise and peril of sector investing.
For some investors, sector funds are a tool for trading and tactical bets. For others, it’s not about jumping in and out—it’s about committing to one or two sectors and sticking with them over time.
Both approaches demand discipline but require very different mindsets.
So, I’m splitting this conversation into two. This week, I’ll focus on sector investing through the lens of a long-term investor—after all, “time in the market” is a core investment principle at The IVA. Next week, I’ll take on the trader’s perspective.
Key Points
- The largest stocks dominate their sector index funds.
- Technology sits atop the performance leaderboard, and it’s not even close.
- Health care and consumer staples offer something for risk-aware investors.
House Keeping
This article focuses on the 10 U.S. sector index funds Vanguard launched in 2004, all based on MSCI indexes. While these funds have 20 years of live performance, at times I’ll turn to the longer record of the underlying indexes—going back to 1992—to provide added perspective.
As I’ve noted before, I view real estate—specifically, Real Estate Index (VGSLX & VNQ) and Global ex-U.S. Real Estate Index (VGRLX & VNQI)—as more of a hybrid asset than a true market sector. That’s why I moved these funds to the “Alternative Funds” section of the Performance Review table. They deserve their own discussion, which I’ll cover in a future piece.
Only two of Vanguard’s five original actively managed sector funds—which were launched nearly 40 years ago—remain today, and I’ll revisit them in a separate article as well.
Finally, as I’ve explained, Vanguard’s index funds and their ETF twins are interchangeable. What I say about one applies equally to the other. So, throughout this article, I’ll list both tickers—for the Admiral and ETF share classes—for each fund.
A Look Inside Vanguard’s Sector Lineup
Before we get into performance, let’s pop the hood and take a look at what’s inside each of Vanguard’s sector index funds. You should always know what you own—and, in this case, what you own are funds dominated by the biggest names in each market.
Under the Hood
| Comm. Services | Consumer Discretionary | Consumer Staples | Energy | Financials | |
| Number of Stocks | 118 | 296 | 109 | 116 | 416 |
| Median Mkt. Cap (billions) | $255 | $164 | $110 | $69 | $118 |
| P/E Ratio | 19.7 | 25.6 | 25.2 | 14.5 | 17.5 |
| % in Top 10 | 71% | 60% | 65% | 64% | 44% |
| Top Ten Holdings | |||||
| 1 | Alphabet | Amazon | Costco Wholesale | Exxon Mobil | JPMorgan Chase |
| 2 | Meta Platforms | Tesla | Walmart | Chevron | Berkshire Hathaway |
| 3 | Netflix | Home Depot | Procter & Gamble | ConocoPhillips | Mastercard |
| 4 | Walt Disney | McDonald's | Coca-Cola | Williams | Visa |
| 5 | AT&T | Booking Holdings | Philip Morris | EOG Resources | Bank of America |
| 6 | Verizon | TJX | PepsiCo | Kinder Morgan | Wells Fargo |
| 7 | Comcast | Lowe's | Altria Group | Cheniere Energy | Goldman Sachs |
| 8 | T-Mobile US | MercadoLibre | Mondelez Int'l | Marathon Petroleum | Progressive |
| 9 | Roblox | Starbucks | Colgate-Palmolive | ONEOK | American Express |
| 10 | Take-Two Interactive | O'Reilly Automotive | Kimberly-Clark | Phillips 66 | S&P Global |
| Health Care | Industrials | Info. Tech. | Materials | Utilities | |
| Number of Stocks | 415 | 392 | 319 | 114 | 69 |
| Median Mkt. Cap (billions) | $94 | $47 | $376 | $36 | $40 |
| P/E Ratio | 23.5 | 25.3 | 34.4 | 25.5 | 20.9 |
| % in Top 10 | 45% | 28% | 59% | 56% | 52% |
| Top Ten Holdings | |||||
| 1 | Eli Lilly | GE Aerospace | NVIDIA | Linde PLC | NextEra Energy |
| 2 | AbbVie | RTX | Microsoft | Sherwin-Williams | Constellation Energy |
| 3 | UnitedHealth Group | Caterpillar | Apple | Ecolab | Southern |
| 4 | Johnson & Johnson | Uber Technologies | Broadcom | CRH PLC | Duke Energy |
| 5 | Abbott Laboratories | Honeywell Int'l | Palantir | Newmont | Amer. Electric Power |
| 6 | Intuitive Surgical | Union Pacific | Oracle | Air Products & Chem. | Vistra |
| 7 | Merck | ADP | Cisco Systems | Freeport-McMoRan | Sempra |
| 8 | Boston Scientific | Boeing | Salesforce | Corteva | Dominion Energy |
| 9 | Amgen | Deere | IBM | Vulcan Materials | Exelon |
| 10 | Thermo Fisher Scientific | GE Vernova | Intuit | Martin Marietta Mat. | Public Svc. Enterprise |
| Data as of May 31, 2025. Source: YCharts and The IVA. | |||||
While these funds technically hold stocks of all sizes—large, mid and small—the portfolios are overwhelmingly weighted toward the giants. Seven of the ten sector funds have over 50% of their assets concentrated in just ten stocks.
That headline number understates the concentration in a handful of key stocks:
- Communication Services Index (VTCAX & VOX): Alphabet and Meta—read, Google and Facebook—make up 45% of the fund.
- Information Technology Index (VITAX & VGT): NVIDIA, Microsoft and Apple also combine for 45% of assets.
- Consumer Discretionary Index (VCDAX & VCR): Amazon and Tesla alone account for 38% of the fund.
You get the idea: Buying a sector fund often means making a big bet on just a handful of companies. So, if you're going to invest, you'd better believe in its biggest holdings—because they’re the ones steering the ship.
Subject to Change
Keep in mind that sector classifications shift more than you might think—and those changes can reshape the funds you're holding.
For example, in 2023, Visa, Mastercard and PayPal were moved out of Information Technology Index into Financials Index (VFAIX & VFH). At the same time, retailers Target, Dollar Tree and Dollar General were shifted from Consumer Discretionary Index to Consumer Staples Index (VCSAX & VDC).
This kind of reclassification isn’t new. A more sweeping shakeup happened back in 2018, when the old Telecommunication Services Index was rebranded as Communication Services Index. That change pulled several heavy hitters—Alphabet (Google), Meta (Facebook), Disney, and Netflix—out of the tech and discretionary sectors and into the new communications bucket.
To be clear, Vanguard doesn’t make these decisions. They follow the indexes, as defined by the likes of S&P and MSCI. And to Vanguard’s credit, they handled the 2018 restructuring cleanly, without triggering big tax bills for shareholders. Still, the impact was real and far-reaching.
The takeaway? A few dominant stocks power sector index funds, and the makeup of those funds can shift in meaningful ways. Like any vehicle, it’s worth popping the hood once in a while to see what’s driving performance.
One Standout Sector
Turning to performance, we’re going to have to confront the elephant in the room: tech stocks.