The 2 Best Vanguard Sector Index Funds to Buy Ahead of 2026, According to Wall Street

FactSet’s bottom‑up forecasts (as of Dec. 5) show Wall Street sees the most 12‑month upside in information technology (21%) and materials (18%), with investors able to access those views via the Vanguard Information Technology ETF (VGT) and Vanguard Materials ETF (VAW). The tech sector trades at ~28.6x forward earnings (above its 5‑ and 10‑year averages) but is expected to deliver ~26% earnings growth next year and has massively outperformed the S&P over recent decades; VGT is heavily concentrated in Nvidia, Apple and Microsoft (~45% of performance), and AI is cited as the primary catalyst. By contrast, materials trade at ~18.8x forward earnings (also above historical averages) but face only ~5% consensus earnings growth for 2026 and a track record of underperformance, leading the author to prefer broad S&P 500 exposure over a materials‑only allocation even though analysts peg the sector for 18% upside; disclosures note the author and Motley Fool hold positions in several mentioned names.

Analysis

FactSet bottom-up forecasts (as of Dec. 5) show Wall Street assigning the most 12‑month upside to information technology (21%) and materials (18%), and investors can access those views via Vanguard Information Technology ETF (VGT) and Vanguard Materials ETF (VAW), each with a 0.09% expense ratio. VGT is heavily weighted to semiconductors, software and hardware, with Nvidia (18.1%), Apple (14.2%) and Microsoft (12.9%) together representing roughly 45% of the fund's performance.

The information technology sector trades at 28.6x forward earnings, above its five‑ and ten‑year averages, but consensus calls for ~26% earnings growth next year and the sector has materially outperformed the S&P (≈2,000% vs 700% over two decades); AI is cited as the primary catalyst. Concentration in the top three names creates meaningful single‑name risk that could disproportionately affect VGT if any of those companies falter.

Materials trade at 18.8x forward earnings, also above historical averages, while consensus forecasts only ~5% earnings growth for 2026 and the sector has underperformed the S&P historically (≈360% vs 700% over 20 years), implying valuations look rich relative to expected growth. The article's author recommends preferring broad S&P 500 exposure for core allocations and treating sector-specific positions, particularly in materials, with caution.

Key Decisions for Investors

• Consider a tactical overweight to information technology via VGT only if you have conviction in AI-driven earnings acceleration and accept the concentration risk from Nvidia, Apple and Microsoft
• Maintain core exposure to a low-cost S&P 500 index fund rather than overweighting materials given the sector's modest 2026 earnings growth forecast (~5%) and history of underperformance
• If taking sector ETF positions size them conservatively, monitor forward earnings revisions and analyst target changes for both sectors, and be prepared to trim VGT exposure if the top-three holdings show signs of underperformance