Apple (NASDAQ: AAPL) And Oracle (NYSE: ORCL) rose to record highs on Wednesday.
Apple is up more than 14% in the past month – the recent rally was mainly fueled by positive reactions to the annual Worldwide Developers Conference. Apple is integrating artificial intelligence (AI) into several key product categories. Meanwhile, Oracle is up 19% over the past month, thanks to recent financial results and guidance.
Because Oracle is listed on the New York Stock Exchange, you won’t find it in the Nasdaq Composite or Nasdaq-focused Exchange Traded Funds (ETFs). But you will find both Apple and Oracle in the Vanguard Total Stock Market ETF (NYSEMKT: VTI)the Vanguard S&P 500 ETF (NYSEMKT: VOO)and the Vanguard Information Technology ETF (NYSEMKT: VGT). Here’s a primer on each fund, why all three just hit record highs, and which fund is best to buy now.
Diversified exposure
The Total Stock Market ETF and the S&P 500 ETF are the two largest Vanguard ETFs, both with net assets of over $1 trillion. Both funds have an expense ratio of 0.03% – or $3 in annual fees per $10,000 invested. The low cost and simplicity of these funds make them excellent choices for those looking for a passive but effective way to mirror the performance of the broader market.
The Vanguard Total Stock Market ETF has 3,719 holdings, compared to 504 holdings in the Vanguard S&P 500 ETF. However, the largest companies are so valuable that the S&P 500 represents approximately 80% of the market capitalization of the US stock market. This dynamic makes the performance of the two ETFs very similar.
The Vanguard S&P 500 ETF will generally outperform the Vanguard Total Stock Market ETF when mega- and large-cap stocks outperform mid-cap and small-cap stocks. The past eighteen months are a good example of what to expect as megacaps start leading the market higher.
As you can see from the chart, mega-cap growth has crushed the S&P 500, as mega-cap stocks have done well while mid- and small-cap stocks have done poorly. But even under these conditions, the Vanguard S&P 500 ETF has only outperformed the Vanguard Total Stock Market ETF by a few percent.
So despite the significant difference in the number of investments between the two funds, both perform virtually the same because the S&P 500 is such a large part of the broader market.
A low-cost way to invest in the most popular stock market sector
The easiest way to invest in companies like Apple and Oracle without incurring high costs is through the Vanguard Information Technology ETF. It has a higher expense ratio of 0.1% compared to 0.03% for the larger Vanguard funds. But that’s only a difference of €7 per €10,000 invested.
The tech sector is chock full of high-octane growth stocks, including the three most valuable companies in the world: Apple, Microsoft (NASDAQ: MSFT)And Nvidia (NASDAQ: NVDA). But it also includes more pick-and-shovel games, such as suppliers of materials and components.
Still, in principle the fund will rise or fall depending on the performance of the three largest holdings and the two largest industries, semiconductors and software.
The semiconductor industry has been a big winner from the AI-driven run-up to the market. The two best examples are Nvidia, which became the third company to be valued at more than $3 trillion Broadcomwhich surpassed $800 billion in market capitalization on Friday after earnings expectations were blown out of the water.
With the technology sector accounting for 30.6% of the S&P 500 and the semiconductor industry accounting for 27.6% of the technology sector, a simple calculation shows us that the sector now accounts for no less than 8.5% of the entire S&P 500 matters. means that the semiconductor industry has approximately the same weight as the entire energy, utilities and materials industrial sector combined.
The technology sector includes companies that provide the computing power needed to run complex AI models, as well as companies that invest in ways to apply AI for businesses and consumers. For that reason, it stands out as the best sector to invest in if you want exposure to the growing trend.
A well-deserved premium appreciation
The danger of buying red-hot tech stocks right now is valuation. The Vanguard Information Technology ETF has a price-to-earnings ratio (P/E) of 42.6. Earnings growth has been strong, but much of the gains are due to an increase in valuation.
Apple’s price-to-earnings ratio rose to 33.2, compared to the three-year median of 28.1. Microsoft has a price/earnings of 38.2, while the three-year median is 33.3. Oracle’s price-to-earnings ratio is 37, compared to a three-year median of 30.2. The list goes on.
Over the long term, technology companies are perfectly positioned to deploy capital on high-margin opportunities that lead to earnings growth. The sector, while a bit overextended from a valuation perspective at the moment, still has what it takes to be a good investment. And for that reason, the Vanguard Information Technology ETF is a better buy than the Vanguard S&P 500 ETF or the Vanguard Total Stock Market ETF if you have a high risk tolerance.
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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds and recommends Apple, Microsoft, Nvidia, Oracle, Vanguard Index Funds-Vanguard Small-Cap ETF, Vanguard Index Funds-Vanguard Total Stock Market ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Apple and Oracle helped propel these three Vanguard ETFs to record highs. Here’s my favorite to buy now. was originally published by The Motley Fool
