Investment management firm Vanguard offers 11 low-cost exchange-traded funds (ETFs) that mirror the performance of each stock market sector.
Four of those sector ETFs closed the first half of 2025 at or just under all-time highs. The Vanguard S&P 500 ETF -- which tracks the index -- also hit an all-time high on June 30.
Here's why you may want to double down on the Vanguard Information nology ETF (VGT 1. 38%), Vanguard Communications Services ETF (VOX 0. 58%), Vanguard Industrials ETF (VIS 0.
82%), and the Vanguard Financials ETF (VFH 0. 97%), as well as reasons to be cautious diving into each sector ETF. Image source: Getty Images.
Vanguard Information nology ETF The Vanguard ETF is heavily weighted in Nvidia, Microsoft, and Apple.
Other top holdings include chip and network vider Broadcom, software giants Salesforce and Palantir nologies, and well-known legacy companies Oracle, Cisco Systems, and International Machines.
The sector has the highest weighting in the S&P 500 and has driven a significant amount of S&P 500 gains over the last decade. However, that outperformance has stretched the valuations of many stocks.
VOO data by YCharts companies have historically grown into their valuations over time.
So investors who want exposure to top growth stocks and have a long-term time horizon may still want to invest in the Vanguard ETF.
However, investors who already have sizable positions in megacap stocks should be mindful that the ETF will vide little diversification.
Vanguard Communications Services ETF Communications is one of the most dynamic market sectors because it offers a blend of legacy telecommunications and media companies, social media giants Alphabet and Meta Platforms, as well as newer media companies Netflix.
Similar to the Vanguard ETF, the Vanguard Communications Services ETF is very top-heavy -- with a whopping 47. 6% concentration in Alphabet, Meta, and Netflix.
So again, if you aren't looking to add to existing positions in these names, this ETF may be a bad fit.
But it could be a good long-term buy if you the ETF's top holdings and don't mind the concentration. It's also worth mentioning that communications is much cheaper than from a valuation standpoint.
The Vanguard Communications ETF sports a mere 20. 8 price-to-earnings (P/E ratio) compared to 38. 8 for the ETF.
Again, this is mainly because many stocks Nvidia and Microsoft have seen their valuations climb as their stock prices have outpaced earnings growth, while Meta (and especially Alphabet) have significantly lower valuations.
All told, the communications sector may be a better fit than for folks looking for growth stocks at a better value.
Vanguard Industrials ETF The industrials sector tends to be cyclical -- benefiting from economic growth while also being vulnerable to economic downturns.
Un and communications, the Vanguard Industrials ETF is highly diversified with its largest holding, GE Aerospace, making up just 4. 2% of the fund.
The top 10 holdings comprise just over a quarter of the ETF. Many large industrial companies have reasonable valuations and pay dividends -- as evidenced by the ETF's 26. 5 P/E ratio and 1.
2% dividend yield. I could see industrials being one of the biggest beneficiaries of artificial intelligence (AI) in the future.
Right now, a lot of AI excitement is concentrated at the top of the value chain through the companies that are powering data centers Nvidia with its graphics cessing units; cloud computing giants Amazon Web Services, Microsoft Cloud, and Google Cloud; and companies building AI models and software.
As the nology matures and becomes integrated across major corporations, the industrial sector could experience an overall lift in efficiency, which could boost earnings growth.
The industrials sector may be a great buy for long-term investors looking for a unique way to invest in AI.
Vanguard Financials ETF The financial sector includes conglomerates Berkshire Hathaway, big banks, payment cessors and card issuers, investment banks, rating agencies, insurance firms, and more.
Financials have been the best-performing sector over the past year, with the Vanguard Financials ETF notching a 27. 9% gain, which is even higher than communications, and industrials.
Financials offer a unique blend of growth potential, dividend income, and reasonable valuations.
However, many financial companies have seen their valuations expand, so investors interested in the sector will have to pay a premium price.
Therefore, some folks may prefer to go with a basket of individual financial stocks rather than buy an ETF.
If I were apaching the sector, I'd focus on Berkshire Hathaway due to its diverse portfolio of controlled companies, positions in public equities, and phenomenal balance sheet -- as well as payment cessors Visa, Mastercard, and American Express.
These companies have reasonable valuations, high margins, and near-perfect models that support buybacks and dividend growth.
Sector ETFs could still be good buys at all-time highs Each Vanguard sector ETF has a mere 0.
09% expense ratio, which is less than $1 in fees per $1,000 invested -- making them excellent ways to get exposure to hundreds of companies.
The best sector ETF to buy now will depend on what you already own, your risk tolerance, and your investment objectives.
, communications, industrials, and financials are all hitting all-time highs because the top companies in these sectors are doing very well.
In many cases, valuations have gone up as investors are willing to pay more for future growth potential.
So it's vital to temper expectations and understand that these companies may need time to bridge the gap between their existing earnings and jections.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. American Express is an advertising partner of Motley Fool Money.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors.
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.
Daniel Foelber has positions in Nvidia.
The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Cisco Systems, International Machines, Mastercard, Meta Platforms, Microsoft, Netflix, Nvidia, Oracle, Palantir nologies, Salesforce, Vanguard S&P 500 ETF, and Visa.
The Motley Fool recommends Broadcom and GE Aerospace and recommends the ing options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft.
The Motley Fool has a disclosure policy.