Tech Sector Volatility Intensifies
The Vanguard Information Technology ETF stands out with a massive $130.3 billion in net assets, making it the largest sector ETF in the U.S. Its low expense ratio of just 0.09% offers investors a cost-effective way to gain exposure to tech stocks.
At first glance, it seems like tech stocks are managing fairly well. The Vanguard ETF is only down about 3.6% and has remained relatively stable since the year’s start, outperforming the S&P 500. However, a deeper look reveals a significant divide that can no longer be overlooked.
BlackRock‘s iShares Semiconductor ETF (socks 1.26%) has closely followed the semiconductor sector, boasting an impressive year-to-date gain of 18.6%. Its key holdings include chip designers like Micron Technology, Nvidia, and Advanced Micro Devices, along with equipment firms such as Applied Materials and ASML Holding.
In contrast, another BlackRock product, the iShares Expand Tech Software ETF (IGV 1.25%) is populated with companies like Microsoft, Palantir Technologies, and Salesforce.
Let’s take a moment to review how the top ten stocks in the ETF are performing.
The Vanguard Information Technology ETF provides a broad view of the tech sector, meaning gains in semiconductors help balance out declines in software stocks.
Interestingly, Nvidia, Apple, and Microsoft collectively make up 43.3% of the ETF. This means a significant downturn would require drops in all three of these major players, along with potential weaknesses in crucial areas like semiconductors.
How to Buy Tech Stocks in a Well-Balanced Manner
Investing in sector ETFs may pay off well by 2026. Not too long ago, software drove the tech sector to new levels, but AI advancements are now challenging the way established software tools are valued. That said, there are likely high-quality software stocks that could be worth buying, perhaps even at a discount.
On the flip side, chip stocks are benefiting from rising demand in computing, networking, and storage technologies. However, the semiconductor industry can be cyclical, making it risky to only invest in that area while ignoring the broader market.
One major reason to avoid sector-wide ETFs is if you already own substantial shares in giants like Nvidia, Apple, or Microsoft. In such cases, investing in an ETF might just increase your existing exposure without providing the diversification that many investors look for. Otherwise, the Vanguard Information Technology ETF could be a valuable option to consider.
