Prediction: Vanguard's Best-Performing ETF in 2024 Will Also Outperform the S&P 500 in 2025

Buying an S&P 500 index fund is an excellent way to achieve diversification and bet on the growth of the U.S. economy. However, some investors may prefer to mix in individual stocks and exchange-traded funds (ETFs) to invest in companies they believe can help them achieve their investment objectives -- whether that is fueling their passive income stream, betting on a certain theme or sector, or trying to outperform the S&P 500.

Vanguard offers over 85 low-cost ETFs for stocks, fixed income, and blends. The best-performing of those ETFs year to date has been the Vanguard S&P 500 Growth ETF (NYSEMKT: VOOG) -- which is up 29.2% so far in 2024 vs. a 21.9% gain in the S&P 500. Here's why the ETF could beat the market again in 2025, and why it is worth buying and holding over the long term.

Growth investing prioritizes the potential for future earnings and cash flows, whereas value investing focuses on what a company is producing today.

With 231 holdings, the Vanguard S&P 500 Growth ETF essentially splits the S&P 500 in half and targets those companies with the highest growth rates, regardless of valuation. The strategy works well if companies deliver on earnings growth, but can backfire if actual results don't live up to expectations.

The Vanguard S&P 500 Growth ETF has a whopping 59.7% weighting in its top 10 names -- Apple, Microsoft, Nvidia, Alphabet, Meta Platforms, Amazon, Eli Lilly, Broadcom, Tesla, and Netflix. Meanwhile, the Vanguard S&P 500 ETF has just a 34.3% weighting in those same 10 stocks. Given that many of these companies have been market-beating stocks in 2024, it makes sense that the Vanguard S&P 500 Growth ETF is outperforming the S&P 500.

To continue beating the market, these companies must prove that they can grow their earnings faster than the market average, justifying higher valuations.

The following chart shows the forward earnings multiplies for these 10 companies, which are based on analysts' estimates for the next 12 months. With the exception of Alphabet, none of these stocks look particularly cheap. But context is key.

Take Meta Platforms, for example. Meta is spending a ton of money on research and development, from buying artificial intelligence (AI)-powered Nvidia chips to experimenting with virtual reality, the metaverse, and more. Meta could easily not make these investments and boost its short-term earnings, which would make the stock look dirt cheap.