The recent downturn in tech stocks presents a captivating opening for investors to initiate or augment their positions in the Vanguard Information Technology ETF (NYSEMKT: VGT). This exchange-traded fund endeavors to replicate the performance of the MSCI U.S. Investable Market Information Technology 25/50 index, encompassing technology stocks ranging from semiconductors to smartphones to software.
1. A Decade of Stellar Returns
Technology has reigned as the top-performing sector in the S&P 500 over the past ten years by a significant margin. The sector has outshone the next closest sector, consumer discretionary, by over 8% annually during this period.
Aligned with the technology sector, the Vanguard Information Technology ETF has delivered robust results over the last decade, boasting an average annual return of 20.6%. This translates to a cumulative return exceeding 550%. A $10,000 investment made a decade ago would now amount to over $65,000.
Recent performance has been even more impressive, with an average annual return of 22.1% over the past five years and 25.9% over the last year. Despite the disclaimer that past performance isn’t a foolproof indicator of future performance, this track record over an extended duration is undeniably impressive.
2. Cost-Efficiency at its Core
High expense ratios in ETFs and other funds can erode long-term returns on investments. Thus, identifying ETFs with low expense ratios can be advantageous.
Fortunately, the Vanguard Information Technology ETF boasts an exceptionally low expense ratio of 0.10%. For every $10,000 invested in the ETF, investors are only charged $10 in fees. Consequently, investors retain nearly all the returns generated by the underlying index.
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3. Inclusion of Leading AI Companies
The Vanguard ETF heavily favors its top three holdings: Microsoft, Apple, and Nvidia, collectively constituting over 47% of its portfolio.
All three companies project as potential major long-term beneficiaries of artificial intelligence (AI). Furthermore, the ETF’s top 10 holdings also include other plausible AI winners like Broadcom, Advanced Micro Devices, Adobe, and Salesforce.
These stocks offer investors diverse avenues to navigate the realm of AI. Nvidia spearheads the chip sector with its leading graphic processing units (GPUs), supporting the infrastructure development for AI. Meanwhile, Microsoft capitalizes on cloud computing and software aspects of AI through its Azure platform. Adobe and Salesforce have also been at the forefront of infusing AI into their product suites.
Apple emerges as a play on the hardware upgrade cycle critical for running the latest AI features on consumer devices. The company has introduced its AI features on the Apple Intelligence platform to integrate into its device operating systems.
4. Market Correction Offers Opportunity
Despite its historical performance, the Vanguard Information Technology ETF is currently below its recent peak of $609.15, recorded on July 15. This marks a decline of over 9% from its 52-week high.
For investors with a long-term investment horizon, this presents an attractive avenue to invest in and gradually average into over time by consistently allocating funds to it on a monthly basis.
Considering an Investment in Vanguard Information Technology ETF
Before delving into the Vanguard Information Technology ETF, it’s crucial to contemplate a few aspects. The Motley Fool Stock Advisor team recently highlighted the 10 best stocks for investors to consider currently, with Vanguard Information Technology ETF not included. This suggests that the identified 10 stocks could potentially yield substantial returns in the foreseeable future.
Reflect on the time Nvidia featured on this list on April 15, 2005 — an investment of $1,000 then would have amounted to $763,374 by now.*
Stock Advisor furnishes investors with a structured blueprint for success, offering advice on portfolio construction, frequent updates from analysts, and two fresh stock picks each month. The Stock Advisor service has significantly outperformed the S&P 500 returns since 2002*.
*Stock Advisor returns as of August 12, 2024