Tech stocks have seen a significant bounce back in recent weeks, gaining traction as we approach summer.
Interestingly, the Nasdaq isn’t the only one climbing; the Vanguard Information Technology ETF has outperformed it. So far this year, the Vanguard Information Technology ETF is up 22%, and it boasts a remarkable 50% increase over the past year.
For comparison, the Nasdaq 100’s Invesco QQQ is up around 17% year-to-date and about 39% in the last twelve months.
This brings us to why the Vanguard Information Technology ETF could be an appealing option for investors looking for a little more thrill in their portfolios as summer approaches.
Extensive exposure to tech stocks
The surge in tech stocks over the past couple of months has propelled the Nasdaq to reach an all-time high of $26,700 on May 14th.
While investors need to be cautious about climbing valuations, tech-focused ETFs offer a fantastic way to tap into the potential growth of the tech sector. Individual tech stocks, especially those that may be overpriced, can be sensitive to broader economic or geopolitical events. ETFs, however, help cushion a diversified investment portfolio. If one stock falters, the overall impact is mitigated within a well-diversified portfolio.
That said, the Vanguard Information Technology ETF stands out as a pure play on tech stocks. In contrast, QQQ includes the 100 largest non-financial companies, providing VGT with greater alpha, which translates into higher potential returns compared to the Nasdaq.
Moreover, this ETF achieves a notable level of diversification across sectors compared to many other tech ETFs. It follows the MSCI US Investable Market Information Technology 25/50 index, which consists of large-cap, mid-cap, and small-cap tech stocks while implementing certain criteria to limit exposure to specific stocks.
Currently, VGT has about 316 tech stocks. Its major holdings include Nvidia, Apple, and Microsoft.
VGT outperforms QQQ
It’s generally a good time to invest in tech through ETFs. Although tech stocks can be quite volatile in the short run, they tend to excel over the long term compared to the broader market.
Interestingly, VGT has already outshone both its year-to-date and twelve-month performance metrics. Over the long haul, VGT boasts 5-year and 10-year annualized returns of 20.9% and 24.3%, respectively, compared to Invesco QQQ’s 17.6% and 21.2%. Meanwhile, the S&P 500’s annualized returns during these same periods lag considerably at 12.7% and 13.8%.
Looking back over two decades, VGT has averaged an annual return of 15.9%, just edging out QQQ’s 15.5%. In contrast, the S&P 500 shows even lower figures, with an average annualized return of 9.2% over the past 20 years.
So, while it’s perfectly normal to feel cautious about investing in certain tech stocks, it’s hard to argue against the long-term potential of the Vanguard Information Technology ETF.
