Do you want exposure to the top tech stocks in the world? Investing in an exchange-traded fund (ETF) can be an ideal option to consider if you don't want to have to worry about having to pick the best investments. After all, it can be tedious to track many stocks, not to mention staying on top of the latest trends in tech.
The good news is that there's one unstoppable, high-powered ETF that can easily give you access to the biggest and brightest stars in tech. It also includes many stocks that are doing well as a result of artificial intelligence (AI). In just the past six months, the fund has soared a whopping 50%.
The ETF I'm talking about is the Vanguard Information Technology Index Fund ETF (VGT +0.89%). Here's what you need to know about the fund, and whether it can be a suitable option for your portfolio.
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Why has the Vanguard Information Technology ETF been doing so well this year?
A big reason the Vanguard fund has been doing so well is because, as its name suggests, its focus is on tech stocks, which have been performing particularly well this year. While it has 314 different stocks in its portfolio, its largest positions are in the most valuable stocks on the market. Nvidia, Apple, and Microsoft make up a combined 44% of the fund's holdings.
Tech companies have benefited from surging demand for products and services related to AI this year. This includes businesses loading up on servers, storage, chips, and other IT infrastructure that's necessary for AI development. The stocks in this fund have been doing well as a result of that, and that trend could continue for the foreseeable future.
Is the Vanguard tech fund an ideal option for growth investors?
The Vanguard ETF has generated some terrific returns, and it can be a great way for tech investors to gain exposure to a variety of different investments, including high-performing AI stocks. From semiconductors to software to hardware, the fund has a mix of various stocks, which can eliminate the need to pick which companies to invest in.
It does, however, come with some risks. The biggest one may be that because its valuation has risen so fast, it has gotten expensive. The average stock in the fund trades at a price-to-earnings (P/E) multiple of 41 -- by comparison, the average S&P 500 stock trades at a P/E of just 25. Buying stocks at such high multiples can result in limited returns, and also make your portfolio more vulnerable to a correction.
Tech stocks can be particularly vulnerable in the event of a market crash, as that's when investors pivot to safer investments. Back in 2022, when the market crashed and the S&P 500 declined by 19%, this Vanguard ETF fell by more than 30%. In down years, it can generate worse returns than the market. But the trade-off is that when market conditions are strong, it can vastly outperform the index.
NYSEMKT: VGT
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Does this Vanguard fund belong in your portfolio?
The Vanguard Information Technology Index Fund can be a great investment to hang on to, but while it holds hundreds of stocks, it won't diversify your portfolio outside of tech. It can be an excellent part of a diversified portfolio, but in order to keep your risk low, you'll likely want to consider other investments outside of tech as well.
However, if you want strong exposure to tech and to be able to benefit from the hottest trends in the sector without picking individual stocks, this ETF can make for a solid option. With a low expense ratio of 0.09% and the top tech stocks in its portfolio, it can set you up for some terrific long-term returns. There will inevitably be some tough years along the way, but with a focus on some of the best growth stocks in the world, the strong years could more than make up for that.
