Is the Vanguard Information Technology ETF Still the Best Tech ETF for Long-Term Investors? Here’s What the Data Says.
Investors are fully aware by now of just how much impact the technology sector has had on the global economy over the past decade. Some of the world’s most valuable companies operate in related industries. And it’s difficult to imagine a scenario in which this trend doesn’t continue.
The Vanguard Information Technology ETF (VGT +0.57%) has been a compelling way to bet on this sector. It’s offered by a reputable investment firm with a five-decade operating history. And the fact that there is $170 billion in assets just in this single vehicle proves that a lot of capital believes in this strategy.
But is this exchange-traded fund (ETF) still the best way for long-term investors to gain exposure to tech? Here’s what the data says.
Image source: Getty Images.
Investor capital grew more than ninefold in the past decade
Performance is the obvious indicator to pay close attention to here. This ETF has not disappointed in this respect. In the past decade, the Vanguard Information Technology ETF has generated a total return of 839% (as of Oct. 7). If you invested $10,000 in early October 2016, you’d have almost $94,000 today. No one is complaining about this stellar gain.
The return speaks for itself. And it comes up considerably ahead of a notable rival ETF. The Invesco QQQ Trust is also considered one of the leading tech-focused ETFs. It tracks the performance of the Nasdaq-100 index, containing 100 of the largest nonfinancial stocks that trade on the Nasdaq stock exchange.
In the last 10 years, QQQ has produced a total return of 586%. This is still extraordinary. However, its annualized gain of 21.3% is short of the Vanguard Information Technology ETF’s blistering 25.1% pace.
Investors can’t ignore fees, either, even though this might be an afterthought relative to performance metrics. This ETF charges an expense ratio of just 0.09%. This is half of the 0.18% that the Invesco QQQ Trust charges its shareholders. This seems like a trivial amount. The savings can add up over time, however, keeping more money in your pocket.
Based strictly on past performance and fees, the Vanguard Information Technology ETF is the best tech ETF for long-term investors.
Vanguard Information Technology ETF
Today’s Change
(0.57%) $0.73
Current Price
$127.98
Key Data Points
AUM
$170B
Dividend Yield
1.40%
Expense Ratio
0.09%
Top Holdings
NVDA
17.74%
AAPL
15.80%
MSFT
11.52%
Betting big on AI
Investors must know what they own. The Vanguard Information Technology ETF contains more than 300 different stocks across a wide range of technology-related industries. As you can imagine, semiconductors shine. This industry accounts for 36.9% of the ETF’s total weight.
That’s the result of Nvidia‘s monster success. The leading artificial intelligence (AI) hardware business accounts for 17.7% of the ETF. Its share price has surged 13,970% in the previous decade. Nvidia is by far the world’s most valuable company with a $5.7 trillion market capitalization.
The second-largest position is Apple, at 15.8% of the portfolio. Investors have condemned the business for moving extremely slowly with its AI strategy. However, the industry leader continues to dominate the market for consumer products and services. And it’s steadily making progress in integrating AI into its ecosystem.
At an 11.5% weighting, Microsoft rounds out the top three. This business has a strong position in the enterprise software market. And its Azure cloud platform is thriving as customers increasingly want to leverage the latest AI tools.
Investors who buy the Vanguard Information Technology ETF are inherently betting that AI will have a massive positive impact on the economy in the future. The top 10 stocks in the portfolio all have exposure to this secular shift underway.
Picking a handful of winners is a challenging task. But history says that betting on the overall technology sector, which is what this ETF offers, is a winning move.
