Investors might think that because the Invesco QQQ ETF (QQQ 4.80%) and the Vanguard Information Technology ETF (VGT 6.14%) both invest heavily in tech and growth stocks, they're interchangeable. They're not.
The Invesco QQQ ETF tracks the Nasdaq-100 index, which simply includes the 100 largest non-financial companies trading on the Nasdaq exchange. It's nearly two-thirds invested in tech stocks, but it also includes Walmart, Costco Wholesale, PepsiCo, and Amgen. In other words, companies that reside far away from the tech sector.
Image source: Getty Images.
The Vanguard Information Technology ETF, however, doesn't have that issue. It tracks the MSCI USA IMI Information Technology 25/50 Index. It's pure tech exposure across more than 300 stocks. And that concentration results in superior performance. Its 10-year average annual return of 25.9% far exceeds the 21.9% return of QQQ.
NYSEMKT: VGT
Key Data Points
That performance advantage, however, comes with concentration risk. Nvidia, Apple, and Microsoft account for roughly 43% of the Vanguard ETF's portfolio. That's a lot of exposure to just a few companies that some investors might not find appealing.
Overall, the Vanguard Information Technology ETF is the superior choice to the Invesco QQQ ETF. Investors might think of the latter as a tech fund, but it really isn't. There's enough of a non-tech allocation to dilute the exposure that investors might really be looking for. And that comes cheap and direct with the Vanguard ETF.
