Looking for a Single Tech ETF? Do Not Overlook This Option.
Key Points
VGT allows you to invest across the tech field without risking it all on a single tech company.
This ETF may be a good fit for an investor who believes tech will remain dominant.
VGT holds over 315 stocks across multiple tech-focused subsectors, offering you variety.
- 10 stocks we like better than Vanguard Information Technology ETF ›
There are plenty of good reasons that the Vanguard Information Technology ETF (NYSEMKT: VGT) is one of the most popular exchange-traded funds (ETFs) on the market. For investors seeking an ETF focused on the technology sector, Vanguard's fund provides broad exposure to America's leading tech companies.
If it isn't already part of your portfolio, here's what you should know before you invest in the Vanguard Information Technology ETF.
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A rundown of important VGT datapoints to consider
Objective: VGT tracks the performance of the MSCI US Investable Market Information Technology 25/50 Index. It employs a passively managed, full-replication approach. In other words, VGT attempts to hold all stocks in its target index in nearly the same proportions as the index it mirrors.
Performance: Despite periods of volatility, VGT has delivered an impressive 10-year annualized return of 24.09%. As of market close on May 15, the fund is already up 20.2% year to date.
Expense ratio: Even with VGT's outsized performance, its expense ratio is reasonable at 0.9%. That means you pay about $9 annually for every $1,000 invested. The cost efficiency of this Vanguard fund is admittedly higher than that of other Vanguard funds, but it's lower than that of many competing actively managed technology funds.
Asset size: Among all ETFs, VGT ranks 15th by assets under management, with $146.5 billion in AUM. That means VGT provides excellent liquidity.
Diversification: VGT holds more than 315 stocks across various technology subsectors. Holdings include hardware, semiconductors, software, electronic equipment, and IT services.
Who should consider VGT?
VGT is particularly suitable for:
- Tech-bullish investors who believe the sector will continue to dominate into the future.
- Anyone looking to diversify their portfolio by increasing tech exposure.
- Long-term investors who can hold on through periods of volatility.
VGT may not be suitable for:
- Risk-averse investors who are uncomfortable with volatility.
- Investors seeking broader diversification in a single fund.
- Short-term traders.
Tax efficiency and special considerations
The Vanguard Information Technology ETF tends to be tax-efficient. With relatively few capital gains distributions (primarily because it rarely needs to sell holdings), the ETF is a good fit for taxable brokerage accounts.
Investors focused on balanced portfolios need to be vigilant. If VGT continues to perform well, it may grow to represent an oversized portion of your portfolio. If so, it will require periodic rebalancing to maintain your desired allocation.
Future outlook
Again, investing in the Vanguard Information Technology ETF may not be suitable for short-term traders due to expected volatility. However, its tie-in to popular technologies leaves it poised for continued growth. As I see it, for the investor who can stick with VGT through regulatory changes and economic cycles, it's likely to be a profitable addition to the portfolio.
Should you buy stock in Vanguard Information Technology ETF right now?
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Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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