Technology stocks have performed very well in recent years, outperforming the broader stock market and allowing shareholders to participate in the impressive growth of some of the most innovative, forward-looking companies in the stock market. Picking tech stocks can be challenging, and many investors therefore choose to invest in exchange-traded funds that focus on the entire technology sector. Vanguard Information Technology (VGT +0.42%) is a low-cost ETF that offers a wide variety of tech stocks for investors, including every subsector of the industry, and it has a long track record of success.
Stats on Vanguard Information Technology ETF
|
Assets Under Management |
$14.1 billion |
|
5-Year Average Annual Return |
17% |
|
Number of Stocks Held |
365 |
|
Portfolio Turnover |
5% |
Data source: Vanguard Group.
What is the Vanguard technology ETF's objective?
The investment objective of the Vanguard Information Technology ETF is to track the performance of the MSCI U.S. Investable Market Information Technology 25/50 Index. This index includes tech stocks in three primary areas: software and services, hardware and equipment, and semiconductors. The ETF seeks to own substantially all of the component stocks in the index, although it also has the right to use sampling techniques in order to comply with regulatory requirements or overcome other impediments to full ownership of all the stocks in the index.
What is the Vanguard technology ETF's current allocation of assets?
Vanguard Information Technology has a high level of diversification across the subsectors of the tech industry. Internet software and services make up about a fifth of the fund's assets, with technology hardware, systems software, semiconductors, and data processing services each having allocations of between 11% and 17%. IT consulting, applications software, and communications equipment mostly round out the portfolio, with very small allocations to niche areas like home entertainment software and electronic components.
Among the top 10 holdings of Vanguard Information Technology, you'll find the largest technology companies in the U.S. market. One thing to keep in mind, though, is that the fund aims to have no significant exposure to international stocks in the tech sector, so don't expect to see some of the best-known foreign names in the industry included among the ETF's holdings.
Image source: Vanguard Group.
How much does the ETF cost?
Vanguard Information Technology charges just 0.10% in expenses to its shareholders on an annual basis. One share currently costs about $140, and there's no minimum investment to purchase shares in your brokerage account. Vanguard brokerage account holders can purchase shares without commissions, while other brokers have their own commission policies that can add fees for purchases and sales of the ETF.
How much income does the ETF pay shareholders?
Tech stocks aren't known for their rich dividends, and it's not surprising to see that Vanguard Information Technology's current SEC-defined yield is just 1.2%. The ETF makes distributions on a quarterly basis, with amounts varying depending on how much income the fund collects from its holdings.
The ETF hasn't had to make capital gains distributions lately, demonstrating one of the advantages of ETFs over traditional mutual funds. Currently, the ETF has an accumulated realized net capital loss, and that should help protect investors from capital gains distributions for the foreseeable future.
Is Vanguard Information Technology right for you?
Vanguard Information Technology has done a good job of giving shareholders exposure to the booming tech industry. Over the past five years, the ETF has outperformed similar funds like the Technology Select Sector SPDR (XLK +0.39%), showing the value of lower expenses on performance. Technology tends to be more volatile than the overall market, so you have to be comfortable with heightened risk in order to invest in the fund. The 4% to 5% pullback we've seen over the past month shows that investors have to be prepared for dramatic ups and downs.
As long as you're prepared for the experience of investing in tech stocks, Vanguard Information Technology ETF is a good way to get exposure to the industry. With low costs that are even cheaper for Vanguard customers, Vanguard Information Technology makes a good pick for tech investors who want one-stop shopping to the whole sector.
