Key Takeaways
- The technology sector has been the primary driver of the stock market’s excellent returns over the past decade and is expected to continue growing with the acceleration of artificial intelligence (AI) investment.
- Investing in a broad-based technology ETF can be a great way to get exposure to the sector without having to choose individual stocks.
- The Vanguard Growth ETF (VUG) is a great option for investing in technology, as it tracks an index of large-cap stocks with growth characteristics and includes exposure to megacap AI stocks like Google, Amazon, and Tesla.
- The Vanguard Growth ETF has a low expense ratio of 0.04% and owns 160 stocks with an average annual earnings growth rate of 31%.
- The fund is top-heavy, with its top three holdings accounting for 32% of the assets, but it should be an excellent investment to hold for many years to come.
Introduction to Technology ETFs
The technology sector has been the driving force behind the stock market’s excellent returns over the past decade, and it’s expected to continue growing with the acceleration of artificial intelligence (AI) investment. With hundreds of excellent exchange-traded funds (ETFs) available, investing in a technology ETF can be a great way to get exposure to the sector without having to choose individual stocks. However, with so many options available, it can be difficult to decide which one to choose. In this article, we’ll explore the best technology ETFs and why a simple approach might be the best bet.
The Obvious Play Might Not Be the Best
The most obvious broad-based tech sector ETF in Vanguard’s lineup is the Vanguard Information Technology ETF (VGT). This ETF has a rock-bottom 0.09% expense ratio and aims to match the performance of a technology sector benchmark index. However, it doesn’t include many of the companies that investors often associate with the term "technology stocks," such as Google parent Alphabet or Amazon, which technically belong to the communications and consumer discretionary sectors, respectively. This limitation makes it less attractive to investors who want broad exposure to the technology sector.
The Vanguard Growth ETF: A Better Option
A better option for investing in technology might be the Vanguard Growth ETF (VUG). This ETF tracks an index of large-cap stocks that have growth characteristics, and tech stocks make up the bulk of the portfolio. The Vanguard Growth ETF includes exposure to megacap AI stocks like Google, Amazon, and Tesla, as well as other exciting non-tech sector growth companies like Eli Lilly. With 160 stocks in the portfolio, the average company is growing earnings at an impressive rate of 31% annually and trades for approximately 39 times earnings, which is quite reasonable given the high rate of earnings growth. The Vanguard Growth ETF also has an even lower expense ratio of 0.04% compared to the Information Technology ETF.
Benefits and Drawbacks of the Vanguard Growth ETF
The Vanguard Growth ETF is a great option for investing in technology, but it’s not without its drawbacks. One of the main concerns is that the fund is top-heavy, with its top three holdings accounting for 32% of the assets and the top 10 holdings making up more than 60%. This means that if a company like Apple or Nvidia performs poorly, the fund is likely to take a hit. However, the benefits of the Vanguard Growth ETF outweigh the drawbacks, and it should be an excellent investment to hold for many years to come. With its low expense ratio, broad exposure to the technology sector, and impressive earnings growth rate, the Vanguard Growth ETF is a great option for investors who want to deploy $1,000 (or any other amount) into tech stocks.
Conclusion
In conclusion, the technology sector is expected to continue growing, and investing in a broad-based technology ETF can be a great way to get exposure to the sector. The Vanguard Growth ETF (VUG) is a great option for investing in technology, as it tracks an index of large-cap stocks with growth characteristics and includes exposure to megacap AI stocks like Google, Amazon, and Tesla. With its low expense ratio, broad exposure to the technology sector, and impressive earnings growth rate, the Vanguard Growth ETF should be an excellent investment to hold for many years to come. Whether you’re looking to deploy $1,000 or any other amount into tech stocks, the Vanguard Growth ETF deserves a spot on your watch list.
