A Once-in-a-Decade Investment Opportunity: 1 Brilliant Vanguard Index Fund to Buy in 2025
Many industry observers expect artificial intelligence (AI) to be the defining technology of the next decade. Microsoft co-founder Bill Gates says AI will be as transformative as "the creation of the microprocessor, the personal computer, the internet, and the mobile phone."
Naturally, investors are focused on semiconductor companies like Nvidia, cloud companies like Amazon, and software companies like Palantir. However, many investors are overlooking one aspect of the technology: AI requires an incredible amount of power.
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- The average ChatGPT query requires 10 times as much electricity as a traditional internet search, such that AI will boost data center power demand 165% by 2030.
- Total demand for electricity is forecast to increase at 2.4% annually through 2030 as data centers evolve into AI factories and domestic manufacturing activity increases.
U.S. power demand was flat over the last decade despite increases in population size and economic activity, but Goldman Sachs expects demand to spike in the coming years to an extent not seen since the early years of this century. Investors can position their portfolios to benefit from that once-in-a-decade opportunity by owning shares of the Vanguard Utilities ETF (NYSEMKT: VPU).
The Vanguard Utilities ETF provides exposure to electric utilities
The Vanguard Utilities ETF measures the performance of 69 U.S. companies in the utilities sector. The index fund is primarily invested in electric utilities (61%) and companies that provide multiple utilities (25%), though it also offers exposure to water and gas utilities and independent power producers.
The 10 largest holdings in the Vanguard Utilities ETF are listed by weight below:
- NextEra Energy: 11.5%
- Southern Company: 6.8%
- Duke Energy: 6.5%
- Constellation Energy: 5.5%
- Sempra: 4.3%
- American Electric Power: 3.8%
- Vistra: 3.7%
- Dominion Energy: 3.5%
- Public Service Enterprise Group: 3.3%
- PG&E: 3.2%
Four of the stocks listed above are currently outperforming the benchmark S&P 500 in 2025. But Constellation Energy and Vistra are leading the way, with year-to-date returns of 44% and 35%, respectively. Those gains speak to their strong market positions.
Specifically, Constellation Energy has the largest nuclear power fleet in the U.S. That matters because many experts think artificial intelligence data centers will lead to a renaissance in nuclear power because it's more reliable than other zero-emission sources, like solar and wind. Similarly, Vistra is the largest competitive power generator in the U.S. and has the second-largest nuclear power fleet.
The Vanguard Utilities ETF has consistently underperformed the S&P 500 over long periods
The Vanguard Utilities ETF outperformed the S&P 500 over the past year. The former gained 35%, while the latter advanced 27%. However, the opposite has happened over longer periods.
- In the last three years, the Vanguard Utilities ETF returned 27%, while the S&P 500 returned 44%.
- In the last five years, the ETF returned 36%, while the index returned 97%.
- In the last decade, the Vanguard Utilities ETF returned 123%, while the S&P 500 returned 257%.
The silver lining is that consistent underperformance has resulted in below-average volatility. The Vanguard Utilities ETF has a three-year beta of 0.72, meaning it moved 72 basis points (0.72 percentage points) for every 100-basis-point movement in the S&P 500.
The last thing investors should know is the Vanguard Utilities ETF has a relatively low expense ratio of 0.1%, so shareholders will pay $10 annually on every $10,000 in the fund. The average expense ratio across all index funds and mutual funds was 0.36% in 2023, according to Morningstar. That makes the Vanguard Utilities ETF a cheap and easy way to get outside-the-box exposure to the artificial intelligence boom.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, Microsoft, NextEra Energy, Nvidia, and Palantir Technologies. The Motley Fool recommends Constellation Energy, Dominion Energy, and Duke Energy and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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