4 Index Funds Beating the Market in August

When most people talk about passive investing with an index fund, the index those funds are generally tied to is the S&P 500. These stocks collectively represent between 80% and 85% of the U.S. equity market, and there's certainly no shortage of S&P 500-based mutual funds and exchange-traded funds to choose from.

It's certainly possible to be a passive index investor outside of Standard & Poor's popular market barometer, though. It's also possible some of these index funds will from time to time be able to outpace the broad market. Four names beating the S&P 500's August gain of 5.1% (so far) deserve a closer look.

Man's hand drawing digital red arrow line rising faster than other arrow lines

Image source: Getty Images.

1. Vanguard S&P 500 Growth Index Fund ETF: Growth is (still) doing most of the work

This month's 5% gain from the S&P 500 is made all the more impressive in that it follows the 46% bounce from March's low. The rebound has been anything but evenly distributed, though. The Vanguard S&P 500 Growth Index Fund ETF (NYSEMKT: VOOG) rallied 54% from the March bottom to the end of August, versus a more modest 36% gain for its counterpart Vanguard S&P 500 Value Index Fund ETF (NYSEMKT: VOOV) for the same timeframe. The disparity has persisted into this month too. The growth ETF is up nearly 7% since the end of August, while the value version has only gained 3% month to date.

Looking further down the market cap scale doesn't change the story either. The Vanguard Mid-Cap Value Index Fund (NYSEMKT: VOE) is up 51% from March's low, but the Vanguard Mid-Cap Growth Index Fund (NYSEMKT: VOT) has gained 66%. The Vanguard Small-Cap Growth Index Fund (NYSEMKT: VBK) was up 73% for that timeframe, but the Vanguard Small-Cap Index Fund (NYSEMKT: VB) has only managed a 60% gain for the five-month stretch.

That said, know that large-cap growth stocks have outpaced small and mid-cap growth names this month. Investors are still seeking out growth. They've tightened their focus on the most established large-cap growth names.

2. iShares Transportation Average ETF: Transportation stocks drive gains home

They'd been subpar performers since late last year, but this month, something's lit a fire under transportation stocks. The iShares Transportation Average ETF (NYSEMKT: IYT) has rallied a little more than 11% in August, mostly led by rail names like Kansas City Southern, Norfolk Southern, and Union Pacific -- three of the fund's top five holdings. FedEx and United Parcel Service round out those top five, and they've provided a fair share of the support for the fund's gain as well.

It's not a difficult to move to figure out. Transportation names were hit hard in late February and early March, when fear of the unknown regarding the coronavirus contagion prompted investors to sell first and ask questions later. As it turns out, though, we need logistics services now more than ever. A great deal of consumerism has shifted online, so much so that FedEx and UPS have tacked on peak usage surcharge fees. What's more, they're getting them with little grumbling from customers. In the meantime, the Association of American Railroads reports that U.S. rail traffic is rapidly recovering from its April and May lull, and intermodal traffic is now greater than where it was at this time last year.

The COVID-19 pandemic hasn't completely upended the economy after all.

3. iShares MSCI China ETF: China getting back up to speed

As bullish as things have been here in the United States, they've been better in some parts of the world. Take China for instance. The iShares MSCI China ETF (NASDAQ: MCHI) -- which more or less mirrors China's equivalent to the S&P 500 -- is up 7% so far this month. That's solid, but also a bit shocking considering the exchange-traded fund advanced more than 9% the month before. It found more room to run and is now up 46% from March's trough.

The gain reflects exactly what it seems it should -- the country is quickly snapping out of its COVID-19 lockdowns funk, with investors anticipating an amicable trade deal to be achieved between China and the United States after the most recent negotiations were delayed.

4. Select Sector SPDR Fund: Firing up the nation's factories again

Finally, like transportation stocks, industrial names didn't exactly start the year out on a strong footing. However, also like transportation names, they're making up for lost time. The Industrial Select Sector SPDR Fund (NYSEMKT: XLI) that serves as a proxy for the Industrial Select Sector Index is up 8.5% month to date. It's still lagging the S&P 500 for the year, but it has quietly outpaced the broad market after pulling out of March's dive. That early weakness ultimately gave the sector some space to widen its new lead.

The gain is rooted in the obvious -- the coronavirus was crippling for a moment, but not permanently devastating. The Industrial Select Sector SPDR Fund's key constituents like Honeywell International and Deere & Company are doing well, prodding their stocks higher. Fellow Fool Asit Sharma noted this week how Deere was the beneficiary of firm demand for agricultural names, and another Fool, Lee Samaha, explains here how Honeywell's planned cost cuts should pay off nicely now that the company's had a chance to regroup from a first-half tumble. Deere & Company shares are even trading at a record high following last week's fiscal third-quarter report that handily topped earnings estimates, underscoring the idea that the fiscal effects of the coronavirus have been overestimated.

10 stocks we like better than Industrial SPDR
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Industrial SPDR wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks


*Stock Advisor returns as of August 1, 2020


James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends FedEx and Vanguard Small-Cap Growth ETF. The Motley Fool owns shares of Vanguard Mid-Cap Growth ETF. The Motley Fool recommends Union Pacific. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.