This Tech ETF Is Quietly Outperforming QQQ in 2026 -- Is There Still Time to Buy?
Key Points
The Invesco QQQ ETF (QQQ), which many use as a proxy for the tech sector, is only 67% invested in tech stocks.
The Vanguard Information Technology ETF (VGT) offers better diversification and a strong long-term track record.
Given AI-fueled revenue and earnings growth estimates over the next 12 months, there's still more possible upside for VGT.
- 10 stocks we like better than Vanguard Information Technology ETF ›
A lot of investors use the Invesco QQQ ETF (NASDAQ: QQQ) as their proxy for tech exposure in their portfolios. In reality, it's only mostly a tech exchange-traded fund (ETF).
Right now, approximately 67% of the Nasdaq-100 index, which QQQ tracks, is tech. It's got all of the big artificial intelligence (AI) names like Nvidia, Apple, and Microsoft at the top of the portfolio. But you may not realize that by owning QQQ, you also own Walmart, PepsiCo, Starbucks, and American Electric Power.
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It's the non-tech exposure in the Invesco QQQ ETF that has been a drag on returns.
For a pure tech investment, I like the Vanguard Information Technology ETF (NYSEMKT: VGT). It's got more concentrated exposure, and its performance over the past decade has been top-notch.
Image source: Getty Images.
Why VGT is the superior tech ETF
Most tech ETFs have two features: a high concentration in the top 10 holdings and a heavy tilt toward large caps. The Vanguard Information Technology ETF has some of those same issues, but not to the degree of its peers. The 58% allocation to the top 10 holdings is slightly below the 60% average for this category. But the 80% allocation to large caps is actually well below the 90%-plus levels of the next two largest tech funds, the State Street Technology Select Sector SPDR ETF (NYSEMKT: XLK) and the iShares U.S. Technology ETF (NYSEMKT: IYW).
It's a relatively small difference in diversification profiles, but one that I think will increasingly matter. With all of the "Magnificent Seven" stocks recently in correction territory, additional weight in smaller companies could pay off over the next six to 12 months.
Plus, the 10-year average annual return of 25.4% is undeniable.
What buying VGT means for your portfolio
Honestly, it may not mean much in terms of sector concentration or which stocks are the biggest holdings in your portfolio.
Anybody who owns the Invesco QQQ ETF or even just an S&P 500 fund like the Vanguard S&P 500 ETF (NYSEMKT: VOO) already has a significant piece of their portfolio invested in tech. Adding the Vanguard Information Technology ETF will only make tech-concentrated portfolios even more concentrated.
But the Vanguard Information Technology ETF is, in my opinion, a better choice than the Invesco QQQ ETF because of its dedicated tech exposure. If you want to invest in tech, I wouldn't want a fund that's just mostly tech.
Given the expected revenue and growth forecasts for tech stocks over the next 12 months, I think there's more upside ahead for this sector. But I wouldn't necessarily expect an average annual return of 25% over the next decade.
Investors who want to dial back exposure to megacap names might want to consider the Invesco S&P 500 Equal Weight Technology ETF (NYSEMKT: RSPT) instead.
Should you buy stock in Vanguard Information Technology ETF right now?
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David Dierking has positions in Apple. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, Starbucks, Vanguard S&P 500 ETF, and Walmart. The Motley Fool has a disclosure policy.
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