Investing in exchange-traded funds (ETFs) has proven to be an effective way to grow a portfolio. And Vanguard is arguably the top ETF company, offering a wide range of funds and a sterling reputation in the investment world. So exploring Vanguard ETFs is a no-brainer investment strategy.
One of the best things about ETFs is that they greatly reduce the guesswork. An ETF represents multiple equities that follow a theme and trade under a single ticker symbol. ETFs create instant diversification for a portfolio, generally making them less risky than picking individual stocks. That option could come in handy when investing in the technology sector, where innovation happens so quickly that stocks tend to be more volatile.
Add it all up, and the Vanguard Information Technology ETF (VGT -0.57%) becomes a no-brainer ETF to invest in for under $1,000. It could even be the best technology ETF you can buy.
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A high-octane play on technology
The Vanguard Information Technology ETF is a pure-play on the technology sector. It holds stakes in 319 stocks, all of which are in the technology space. Even the Invesco QQQ (QQQ -0.55%), arguably the most popular technology ETF, isn't a pure technology ETF. It's roughly 60% technology, with the remainder allocated to other market sectors.
One could argue that the past 20 years have been a digital golden era, marked by the emergence of the internet, followed by the rise of cloud computing. The Vanguard Information Technology ETF began trading in 2004 and has generated stellar annualized returns of 13.7% over its lifetime, as well as a staggering 21.3% over the past decade.
Now, it could be artificial intelligence (AI) that continues to drive outsized growth and returns. Experts believe that AI will generate trillions of dollars in economic value over the next decade and beyond, positioning this ETF to continue thriving.
Taking a closer look
One of the best features of the Vanguard Information Technology ETF is that, since it's 100% allocated to the technology sector, Vanguard breaks down the fund's holdings into submarkets rather than broader market sectors. It provides investors with valuable insights into the types of technology businesses the ETF holds.
For instance, its top six largest submarkets are:
| Submarket | ETF Weight |
|---|---|
| Semiconductors | 30.4% |
| Systems software | 21.8% |
| Application software | 15.1% |
| Technology hardware, storage | 15% |
| Communications equipment | 3.6% |
| IT consulting & other services | 3.6% |
Data source: The author created this table using data from Vanguard.
If you look at the Vanguard Information Technology ETF from the standpoint of individual companies, here are its top 10 holdings:
| Company | ETF Weight |
|---|---|
| 1. Nvidia | 16.74% |
| 2. Microsoft | 14.89% |
| 3. Apple | 13.03% |
| 4. Broadcom | 4.57% |
| 5. Oracle | 2.05% |
| 6. Palantir Technologies | 1.64% |
| 7. Cisco Systems | 1.58% |
| 8. International Business Machines (IBM) | 1.56% |
| 9. Salesforce | 1.47% |
| 10. Advanced Micro Devices (AMD) | 1.31% |
Source: Vanguard.
You can see that the ETF focuses heavily on semiconductors (chips) and different types of software, with outsized exposure to Nvidia, Microsoft, and Apple. It makes sense from the standpoint that chips are essentially technology's building blocks, and AI and most other technological innovations are software in some form or another.
Why the Vanguard Information Technology ETF may be a better choice than the Invesco QQQ
The Invesco QQQ Trust is very popular, so you may be sitting here wondering which is the better choice. There are no rules against investing in both. That said, the Vanguard Information Technology ETF's low expense ratio is one of my favorite features.
It's only 0.09%, or $0.90 of that $1,000 you're investing. Meanwhile, the Invesco QQQ's 0.20% expense ratio isn't anything excessive, but you are paying more than twice as much of your money to the ETF's management team. Again, it doesn't seem like much at face value, but as you invest more money and the years pass, those fees can certainly add up.
The Vanguard Information Technology ETF checks all the boxes:
- Trusted name
- Strong past performance
- Low fees
- Concentrated technology exposure, yet diversified among its holdings (after the top three)
It's hard to go wrong here, making it a no-brainer for investors to buy and hold as part of a long-term portfolio.
