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Give the Vanguard S&P 500 (NYSEMKT: VOO) and its fellow S&P 500 exchange-traded funds (ETFs) their due. Amid challenges including high inflation, the war in Iran, a recent interest rate hike, and less-than-inspiring economic data, the benchmark gauge of U.S. stocks is up 13.8% year to date.
The tech-heavy Nasdaq-100 index has been even better, gaining 23.2% and confirming that investors still have plenty of enthusiasm for artificial intelligence (AI) stocks. Over nine months and a couple of days, the performance of those indexes is likely to satisfy many market participants, particularly given the aforementioned headwinds.
Missed AI's "Act 1"? Act 2 Could Be 14x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we're only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »
Of course, many investors are ambitious, seeking market-beating returns. Plenty of ETFs, including a fair number from the Vanguard stable, are outperforming both the Nasdaq-100 and the S&P 500 this year.
Beating both benchmarks is an impressive feat; there's no denying it. But for the Vanguard Energy ETF (NYSEMKT: VDE) and the Vanguard FTSE Pacific ETF (NYSEMKT: VPL), the road to near-term upside may be littered with potholes.
Home to the largest domestic energy companies by market cap, the Vanguard Energy ETF is up 42.3% year to date, or more than triple the returns offered by the S&P 500 and nearly double those notched by the Nasdaq-100.
Much of oil stocks' 2026 run higher is attributable to the war in Iran, suggesting that energy equities and related ETFs could face selling pressure if the war ends and oil prices tumble. The White House is motivated to accomplish those objectives, and with Iran's economy in shambles, it may also be compelled to come to the negotiating table.
That's one risk that could confound the Vanguard Energy ETF over the near term. The problem is that this ETF and its peers could also be hampered by a continuing war because, with oil prices still high, demand destruction is a real factor to consider.
Add to that the fact that some experts see uncertainty as being an immovable object of sorts in the oil market through the end of this year and into 2027. If there's one thing investors don't like, it's uncertainty.
To this point in 2026, the Vanguard FTSE Pacific ETF is rewarding investors who took a more tactical approach to ex-U.S. stocks at the start of the year, as it is beating not only the S&P 500 and the Nasdaq-100 but also a range of more diversified international ETFs.
This ETF is up 30.7% year-to-date, but a heavy tilt toward Japanese stocks (54.5% of the portfolio) could prove risky now that the country has raised interest rates to the highest level in 31 years. Not only does that erase Japan's status as a reliable source of cheap money, but it risks strengthening the yen. That'd be bad news for Japanese exporters, plenty of which are held in this ETF, because a strong Japanese currency means international sales are worth less when converted into yen.
The other "wild card" to consider is that if the yen remains depressed for too long, the Bank of Japan could raise rates more rapidly than global investors would like, potentially weighing on Japanese stocks.
If all Japanese interest rates weigh on this ETF, the burden for upside shifts to South Korean memory chip giants Samsung and SK Hynix to do the heavy lifting for this Vanguard fund. Those stocks combine for nearly 12% of the ETF's portfolio, confirming this fund's credibility as a backdoor international play on AI. Still, even if they catch fire again, it may not be enough to offset a possible rate-induced slump by Japanese stocks.
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Todd Shriber has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
2 Vanguard ETFs Outpacing the S&P 500 and Nasdaq-100 This Year but Facing Near-Term Tests was originally published by The Motley Fool
