Vanguard Information Technology ETF: A High-Performing Fund Riding the AI Wave

This Vanguard ETF Has Generated 620% Returns in 10 Years. Is It Still a Buy? | The Motley Fool

The Vanguard Information Technology ETF gives investors exposure to many of the top tech stocks in the world. If you're not sure where to invest in the stock market, you should consider holding an exchange-traded fund (ETF) in your portfolio. Doing so can drastically simplify your decision-making process. ETFs hold dozens, hundreds, and sometimes even thousands of stocks. They can give you some excellent exposure through just a single investment. Vanguard funds, in particular, are popular choices due to their low fees and solid stock selection. In some cases, you can also achieve considerable returns from investing in ETFs. One exceptional example is the Vanguard Information Technology Index Fund ETF (VGT 0.34%), which has generated some significant returns for investors in the past decade. Can it still be a good investment today? A big reason the Vanguard Information Technology fund has been a phenomenal investment to own over the past decade is because it focuses on top tech stocks, including big names such as Apple, Microsoft, and Nvidia -- three companies that are benefiting from the excitement over artificial intelligence (AI) in recent years. Together, those three stocks account for 44% of the fund's total weight. Overall, there are 316 stocks in the ETF. When including the ETF's dividend (it yields a modest 0.6%), its total returns over the past 10 years come in at around 620%. That means a $25,000 investment in the fund then would be worth approximately $180,000 right now. In comparison, if you made the same size investment mirroring the S&P 500, it would be worth considerably less today, totaling around $94,000. As well as the ETF has performed over the past decade, there's still a bullish case to be made for investors who are contemplating the fund, which is due to the potential in AI. Research company Gartner projects that AI chip sales will total at least $119 billion by 2027, which is more than double the $53 billion it totaled just last year. That's good news for Nvidia and other chipmakers, as it suggests demand will remain strong. The overall AI market is also looking promising. Analysts from Fortune Business Insights estimate that globally, it will grow at a compound annual growth rate of 20.4% until 2032. While the Vanguard fund isn't exclusively an AI fund, tech stocks as a whole will benefit from businesses building AI models and related products and services. Companies will invest in new AI technologies, and they will need to upgrade their existing IT infrastructure to help ensure they have the capabilities to handle the added workloads. Many tech companies are at least indirectly involved with AI in some way, even if they aren't creating AI-specific products and services. The Vanguard Information Technology ETF has a modest expense ratio of 0.10%, and it offers investors a great way to gain exposure to the best tech stocks in the world. Given the soaring valuations in tech, investors may feel uneasy about investing in this type of fund. But while there may be a correction in the cards for some highly priced tech stocks in the near future, the long-term trajectory still looks promising. Tech has, for the most part, been a great option for long-term investors, and it has allowed investors to generate some incredible returns along the way. As long as you plan to stay invested for years, this Vanguard fund can be a great investment to hold in your portfolio.

1 Vanguard ETF That's Turned $10,000 Into Over $28,000 in Just 5 Years | The Motley Fool

Exchange-traded funds (ETFs) could be seen as the equivalent of the tortoise in Aesop's famous fable of the tortoise and the hare by some investors. Like the fabled tortoise, ETFs win the race but do so by being slow and steady. But not every ETF fits that stereotype. Some funds sprint like Aesop's hare and are big winners for investors. One Vanguard ETF even turned $10,000 into over $28,000 in just five years. You don't have be a rocket scientist to figure out what kinds of stocks the Vanguard Information Technology ETF (VGT 0.37%) focuses on. This Vanguard fund tries to track the performance of the MSCI US Investable Market Information Technology 25/50 Index, which includes only U.S. stocks in the information technology sector. The Vanguard Information Technology ETF currently owns 316 stocks, just one less than its benchmark index. Its top holdings include Apple, Microsoft, Nvidia, Broadcom, and Oracle. Together, these five stocks make up over half of the ETF's portfolio. The ETF was created in January 2004. Since then, it has delivered an average annual return of 13.55%. But it has really taken off over the last five years. During this period, the Vanguard Information Technology ETF's market price has grown by an annual compounded average of around 23.2%. Many of the stocks owned by this Vanguard ETF don't pay dividends, but some do. With dividends reinvested, the fund has turned an initial investment of $10,000 five years ago into close to $28,440 today. The most important factor behind the stellar performance of the Vanguard Information Technology ETF is the rapid adoption of artificial intelligence (AI), especially generative AI. All five of the fund's top holdings have strong AI credentials. Nvidia has been a monster winner due to AI. Its share price has skyrocketed more than 28x over the last five years as customers bought the company's graphics processing units (GPUs) hand over fist to power AI models. Broadcom stock has soared over 520% during the period. The company has emerged as a leader in AI infrastructure. Apple's share price has nearly quadrupled over the last five years. Its big gains in 2024 are largely due to excitement over the company's new generative AI capabilities. Microsoft and Oracle have seen their stocks roughly triple thanks to a big AI tailwind. The Vanguard Information Technology ETF might not have been able to deliver such huge gains, though, during an economic downturn. It's certainly helped that the U.S. and global economies bounced back quickly from the COVID-19 pandemic. Many experts predicted the U.S. would enter into a recession over the last couple of years, but the economy remained stronger than expected. We can't leave out the Vanguard ETF's low costs, either. Its annual expense ratio is only 0.1%, well below the Lipper peer average of 1.303%. The fund's returns would have been lower if its expenses were significantly higher. It's possible that the Vanguard Information Technology ETF won't be able to keep up its strong momentum. Valuation could become a problem. The average price-to-earnings ratio for the stocks in the ETF's portfolio is a sky-high 35.6. However, this valuation metric should be viewed in the context of the growth generated by the stocks owned by the fund. We're only in the early innings of the AI era. Tech stocks that focus on AI (as all of the Vanguard ETF's top holdings do) could continue delivering exceptional returns for years to come. The Vanguard Information Technology ETF could be volatile, especially with a handful of stocks accounting for a large percentage of total assets. Perhaps it won't be able to turn a $10,000 investment into more than $28,000 over the next five years. But I think this ETF remains a good pick for long-term investors.

1 Vanguard Index Fund to Buy to Beat the S&P 500 as the Artificial Intelligence (AI) Boom Unfolds

Technology stocks have consistently beat the S&P 500, and that trend could continue as AI spending increases. The S&P 500 (^GSPC -0.02%) tracks the performance of 500 large-cap stocks that cover roughly 80% of U.S. equities and about 50% of global equities by market value. The index includes many of the world's most influential companies, and investors frequently use it as a performance benchmark for their own portfolios. However, most investors fail to outperform the S&P 500 over long periods. Even professional money managers typically come up short. Indeed, 90% of large-cap funds underperformed the benchmark index over the last 10 years. But investors could beat the odds with a technology-focused index fund. The Vanguard Information Technology ETF (VGT 0.39%) more than doubled the gains in the S&P 500 over the last decade, and the market-beating returns could continue as artificial intelligence spending soars in the coming years. Here's what investors should know. The technology sector has consistently crushed the S&P 500 The S&P 500 includes companies from 11 stock market sectors, but a single sector has been responsible for a large percentage of the index's gains in recent years. "The technology sector has generated 32% of global equity returns and 40% of U.S. equity market returns since 2010," according to Goldman Sachs. The chart below further illustrates that point. It compares the technology sector's total return to the S&P 500's total return over different periods. Notice that technology stocks have often doubled the gains in the index. Source: YCharts. Importantly, the technology sector's outperformance has not been a product of hype or irrational valuations, but rather solid financial fundamentals. "The global tech sector's earnings per share have risen about 400% from its peak before the great financial crisis, while all other sectors together have risen 25% during that span," according to Goldman Sachs. The Vanguard Information Technology ETF could outperform the S&P 500 over the next decade The Vanguard Information Technology ETF tracks 316 technology stocks that fall into four broad categories: (1) chipmakers and semiconductor equipment manufacturers, (2) cloud infrastructure and platform services providers, (3) software vendors, and (4) hardware and equipment manufacturers. The five largest holdings in the fund are listed by weight below. The technology sector's long-term outperformance can be attributed to explosive growth in cloud computing, though other secular trends have contributed, including the proliferation of mobile devices, online shopping, and streaming media. Those technologies will only become more relevant, but artificial intelligence (AI) looks like the next decade-defining technological transformation. Indeed, Grand View Research estimates spending across AI hardware, software, and services will increase at 37% annually through 2030. And the five companies listed above could be some of the biggest beneficiaries of the AI boom. The last item of consequence is the fee structure. The Vanguard Information Technology ETF has an expense ratio of 0.1%, meaning investors will pay $1 annually for every $1,000 invested in the fund. Comparatively, the average index fund had an expense ratio of 0.36% in 2023, according to Morningstar. Here's the bottom line: The Vanguard Information Technology ETF is a relatively cheap and simple way to gain exposure to stocks in the technology sector, the best-performing market sector in recent history. The index fund is a particularly attractive option right now because many technology companies are likely to benefit as the artificial intelligence boom unfolds in the years ahead.

Meet The Low-Cost Vanguard ETF That Has 20% Of Its Holdings in Nvidia, Broadcom, and AMD | The Motley Fool

Nvidia (NASDAQ: NVDA) stock is surging once again, passing Microsoft (NASDAQ: MSFT) to become the second most valuable U.S.-based company behind Apple (NASDAQ: AAPL). Nvidia's new Blackwell graphics processing unit architecture could deliver significant performance improvements and cost efficiency, which would be a win for Nvidia and its customers. Folks looking to invest in artificial intelligence (AI) could simply buy Nvidia stock as a catch-all way to play a rise in computing power demand. But there are also exchange-traded funds (ETFs) to consider. Apple, Nvidia, Microsoft, and Broadcom have a combined market cap of over $10.5 trillion -- making the sector very top-heavy. And while the tech sector used to be dominated by software and hardware companies, semiconductors are now the largest industry within the sector, making up 28.9% of the Vanguard Information Technology ETF. So, while investors could turn to pure-play semiconductor funds like the iShares Semiconductor ETF (NASDAQ: SOXX), the Vanguard Information Technology ETF may be a better long-term investment. For starters, the iShares Semiconductor ETF has a 0.35% expense ratio compared to just 0.1% for the Vanguard Information Technology ETF. The semiconductor industry is also highly cyclical, making an ETF that focuses only on chip stocks volatile. With the Vanguard Information Technology ETF, an investor gains access to the infrastructure and processing might that is powering AI, as well as AI-driven tools like those deployed by software companies Microsoft, Adobe, or Apple phones with AI chips. The Vanguard Information Technology ETF is a great way to invest in today's top tech companies. However, its greatest drawbacks are that it offers little exposure to smaller companies (given the size of the largest tech companies), and it leaves out some important names that you may think are in the tech sector. Amazon (NASDAQ: AMZN) and Tesla are in the consumer discretionary sector. Meta Platforms (NASDAQ: META) and Google's parent company, Alphabet, are in the communications sector. So you won't find these four names in the Vanguard Information Technology ETF. Amazon Web Services is the undisputed leader in cloud infrastructure -- which is critical for running global AI models. Meanwhile, Meta Platforms has arguably been the single best example of a company investing heavily in AI (and buying a lot of Nvidia chips) and showing why those investments are paying off. Vanguard offers a low-cost mega-cap growth fund that targets top growth stocks regardless of their sector. The Vanguard Mega Cap Growth ETF (NYSEMKT: MGK) may be a better fit for investors who want less exposure to tech stocks and better coverage of the largest growth stocks by market cap. Nvidia has captured the spotlight as the leader in AI innovation in the semiconductor space. Still, some investors may prefer AMD as an underdog that could take market share from Nvidia over time. Meanwhile, Broadcom offers a nice blend of value, growth, and income, given its diversified business and growing dividend. The fact that the tech sector has a 20% weighting in these three stocks alone shows how valuable these companies have become. Buying the Vanguard Information Technology ETF is a simple way to add to your exposure to these three names and the rest of the semiconductor industry. It's also an excellent way to avoid the risks of betting on a single company to invest in AI or another trend. The best way to approach individual stocks and ETFs is to use them to suit your interests, investment objectives, and risk tolerance. Investors who closely follow the sector may prefer to build their tech portfolio around chip stocks and leave out the big software names. But folks looking for a low-cost passive approach may prefer the hands-off nature of simply buying the Vanguard Information Technology ETF and resting easy knowing it is chock-full of semiconductor stocks -- so they won't miss out if the industry continues to soar higher.