Seven of Vanguard's eleven sector ETFs have outperformed the S&P 500 in 2026, with energy, materials, and utilities leading the charge. While the Vanguard Utilities ETF (VPU) is traditionally viewed as a defensive investment, it's delivering strong returns this year. The sector's performance reflects surging electricity demand driven by artificial intelligence workloads and data center expansions across the United States.

This growth marks a significant shift from 2025, when only communications, tech, and industrials outpaced the broader market. The U.S. Energy Information Administration projects electricity use will increase 1% in 2026 and 3% in 2027, representing the strongest four-year growth period since 2000. These regulated utilities benefit from virtual regional monopolies despite working with federal agencies that resist rate hikes and manage permitting.

While individual utility stocks can be challenging to evaluate due to the sector's regional structure, Vanguard's sector ETFs offer diversified exposure to these growth opportunities. The combination of steady cash flows, stable dividends, and increased power demand makes the utilities sector particularly attractive in 2026. With AI infrastructure driving unprecedented electricity consumption, this traditionally defensive sector is emerging as a surprising growth opportunity.