Prediction: This ETF Will Outperform the S&P 500 Over the Next Decade

The S&P 500 has long been viewed as the benchmark for the stock market. It comprises about 500 of the largest companies that trade on a major U.S. stock exchange. It's a market-cap, weight-based index, which means that the larger the company's value, the larger the percentage of the index the stock represents.

Many investment professionals strive to beat the return of the S&P 500 , but that has not proven to be an easy task. The index has generated strong results over the years, averaging a 13.2% annual return over the past 10 years as of the end of July. According to S&P, over 87% of U.S. large-cap funds have underperformed the S&P 500 over the past decade.

However, one exchange-traded fund (ETF) has consistently outperformed the S&P 500 over the past decade, and I think that outperformance will continue in the next decade as well. That ETF is the Vanguard Growth ETF (NYSEMKT: VUG) .

An ETF that consistently outperforms the S&P 500

The Vanguard Growth ETF is similar to ETFs that track the S&P 500, except that it tracks the CRSP US Large Cap Growth Index, which is basically the growth side of the S&P. The S&P 500 and Vanguard Growth ETF share many of the same top holdings, but the Vanguard ETF generally holds them in a much higher percentage.

For example, at the end of the second quarter, Apple was the largest holding in both, but the iPhone maker was a 12.9% holding in the Vanguard Growth ETF versus 6.9% in the Vanguard S&P 500 ETF , which tracks the S&P 500.

As a result, the Vanguard Growth ETF is much more heavily weighted toward technology and consumer discretionary stocks than the S&P 500. Nearly 60% of its portfolio composition is in technology stocks, with another nearly 17% in consumer discretionary stocks. By comparison, the Vanguard S&P 500 ETF's largest sectors are technology at over 31%, followed by financials at 13%.

The Vanguard Growth ETF's heavier weighting toward tech stocks has helped it outperform over the years, with a 15.3% annualized return over the past decade as of the end of July. While that may not sound like much of a difference from the S&P 500's performance, the additional return on a $100,000 investment in the Vanguard Growth ETF versus the Vanguard S&P 500 ETF would be $73,580 over 10 years.

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Why the Vanguard Growth ETF should continue to outperform

While past performance is not a guarantee of future performance, there is a reason to believe that the Vanguard Growth ETF will continue to outperform the S&P 500 over the next decade.

The fund is much more heavily weighted toward tech stocks, which, in my view, gives it a long-term advantage. These companies have the propensity to grow to become the largest companies in the world. There is a reason why nine of the S&P 500's largest components are in tech-related companies, which include Amazon and Tesla . In fact, Berkshire Hathaway is the only non-growth company in the S&P's top 10 holdings.

Given that growth companies tend to grow to become the world's largest companies, there is reason to believe that these companies will continue to outperform value companies over the long run. Meanwhile, we are currently in the early innings of what appears to be a major technological shift with artificial intelligence (AI) . As AI and technology continue to change the world, being overweight investments in this sector appears to be a good long-term bet.

With tech valuations more than reasonable now, I predict that the Vanguard Growth ETF will continue outperforming the S&P over the next decade.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, Tesla, Vanguard Index Funds-Vanguard Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy .