Prediction: 2 Brilliant Vanguard Index Funds Will Continue to Beat the S&P 500 in 2025

The S&P 500 (SNPINDEX: ^GSPC) is widely considered the best gauge for the overall U.S. stock market due to its scope and diversity. It measures the performance of 500 large-cap companies across all 11 stock market sectors.

The S&P 500 has advanced 1% year to date, underperforming the communications services and healthcare sectors, which have returned 2% and 8%, respectively. Importantly, companies in those sectors are forecast to report faster revenue and earnings growth than the overall S&P 500 in 2025, and I think that will lead to continued outperformance.

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Investors can position their portfolios to benefit by purchasing shares of the Vanguard Communications Services ETF (NYSEMKT: VOX) and the Vanguard Health Care ETF (NYSEMKT: VHT). Read on to learn more about these index funds.

1. Vanguard Communications Services ETF

The Vanguard Communications Services ETF tracks the performance of 117 U.S. stocks in the communications services sector. It covers companies in the cable, broadband, social media, streaming entertainment, and wireless markets. The 10 largest holdings in the index fund are listed by weight below:

1. Meta Platforms: 24.7%
2. Alphabet: 23.7%
3. Netflix: 4.9%
4. Walt Disney: 4.1%
5. AT&T: 3.8%
6. Verizon: 3.5%
7. T-Mobile: 2.8%
8. Comcast: 3.4%
9. The Trade Desk: 1.6%
10. Roblox: 1.5%

The Vanguard Communications Services ETF advanced 82% in the last two years, topping the 55% gain in the S&P 500. I think that outperformance will continue throughout 2025 because communications companies are expected to report strong sales and earnings growth this year, and the sector-level valuation is attractive.

To elaborate, analysts expect S&P 500 companies in aggregate to report sales growth of 5.8% and earnings growth of 14.8% this year. Comparatively, communications companies are forecast to report revenue growth of 7.7% and earnings growth of 15.2%, according to FactSet Research. That makes the current sector-level valuation of 23 times earnings look quite reasonable.

The Vanguard Communications Services ETF has an expense ratio of 0.09%. That means shareholders will pay just $0.90 annually on every $1,000 invested in the fund. The average expense ratio on similar funds is 0.85%, according to Vanguard.

2. Vanguard Health Care ETF

The Vanguard Health Care ETF tracks 416 U.S. companies in the healthcare sector. Its constituents generally fall into two categories: (1) companies that sell healthcare equipment or provide healthcare services and (2) companies involved in pharmaceutical and biotechnology research. The 10 largest holdings in the index fund are listed by weight below:

1. Eli Lilly: 10.5%
2. UnitedHealth Group: 8.1%
3. AbbVie: 4.7%
4. Johnson & Johnson: 4.3%
5. Merck: 3.8%
6. Thermo Fisher Scientific: 3.6%
7. Abbott Laboratories: 3.5%
8. Intuitive Surgical: 3.2%
9. Amgen: 2.4%
10. Boston Scientific: 2.4%

The Vanguard Health Care ETF advanced 19% in the last two years, underperforming the 55% return in the broader S&P 500. But portfolio managers Andy Acker and Daniel Lyons at Janus Henderson Investors say that degree of underperformance is extremely unusual. "Health care stocks look deeply undervalued," they wrote in January.

As mentioned, analysts expect S&P 500 companies in aggregate to report sales growth of 5.8% and earnings growth of 14.8% this year. But healthcare companies are forecast to report revenue growth of 6.2% and earnings growth of 20.6%, according to FactSet Research. That makes the current sector-level valuation of 32 times earnings look very reasonable.

The Vanguard Health Care ETF has an expense ratio of 0.09%. That means shareholders will pay just $9 per year on every $10,000 invested in the fund. That average expense ratio on similar funds is 1.01%, according to Vanguard.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in The Trade Desk and Walt Disney. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, Alphabet, FactSet Research Systems, Intuitive Surgical, Merck, Meta Platforms, Netflix, Roblox, The Trade Desk, Thermo Fisher Scientific, and Walt Disney. The Motley Fool recommends Amgen, Comcast, Johnson & Johnson, T-Mobile US, UnitedHealth Group, and Verizon Communications. The Motley Fool has a disclosure policy.