It’s hard to find a stock that outperforms Nvidia in the past five years. Since 2019, the stock has achieved a mind-boggling compound annual growth rate (CAGR) of 79%. That means the $10,000 invested five years ago would be worth $187,000 today.
Unfortunately it is not possible to go back in time. So, what can investors do today to recreate some of that Nvidia lightning in a bottle? One way – at least in part – could be to invest in an exchange-traded fund (ETF) that focuses on the technology sector.
So today let’s take a look at the Forefront Information Technology ETF (NYSEMKT: VGT).
What is the Vanguard Information Technology ETF?
First things first. The Vanguard Information Technology ETF is an exchange-traded fund, meaning it is a tradable basket of stocks focused on the technology sector. Top positions include Microsoft, Apple, Broadcomand yes, Nvidia.
|
Company Name |
Symbol |
Percentage of assets |
|---|---|---|
|
Microsoft |
MSFT |
18.3% |
|
Apple |
AAPL |
15.4% |
|
Nvidia |
NVDA |
11.8% |
|
Broadcom |
AVGO |
4.2% |
|
Sales team |
CRM |
2.1% |
|
Advanced micro devices |
AMD |
2.1% |
|
Adobe |
ADBE |
1.7% |
|
Accenture |
ACN |
1.6% |
|
Oracle |
ORCL |
1.5% |
|
Cisco systems |
CSCO |
1.5% |
Data source: Vanguard.
An important aspect of the fund is that it is an index ETF, meaning it is not actively managed. Instead, the fund aims to improve the performance of the MSCI US Investable Market Index/Information Technology 25/50 Index — a basket of small, medium and large technology sector stocks.
This design keeps the fund’s costs low, meaning the fund’s expense ratio is minuscule: 0.1%. That means that for every $10,000 invested in the fund, investors only pay $10 per year in fees.
Why is the Vanguard Information Technology ETF a smart investment?
Overall, ETFs can be a smart choice for most investors thanks to their built-in diversification. And in the case of the Vanguard Information Technology ETF, investors gain exposure to a wide range of technology stocks for a minimal fee.
Admittedly, the fund is top-heavy, with about 45% of its holdings concentrated in Microsoft, Apple and Nvidia. However, that isn’t necessarily a bad thing. Over the past five years, each of these stocks has killed off its share price S&P500.
In any case, holding shares of the Vanguard Information Technology ETF is a way for investors to gain exposure to Nvidia without directly owning Nvidia stock. That can be useful, especially if investors want to reduce the volatility of their portfolio.
Furthermore, since the fund owns hundreds of stocks, including small caps, there is upside potential, especially if one of those small cap stocks turns into the “next Nvidia.”
Finally, there is passive income. Admittedly, the fund’s dividend yield is meager: just 0.7%. However, that’s more dividend income than an investor would get by just owning Nvidia stock, which has a dividend yield of just 0.2%.
Is the Vanguard Information Technology ETF a Buy Now?
The Vanguard Information Technology ETF is a well-constructed, affordable ETF that is a smart buy for many investors. That said, it’s not for every wallet. In particular, its high concentration of technology stocks (particularly Apple, Microsoft and Nvidia) makes it unsuitable for investors who already have excessive exposure to these stocks. Furthermore, given the fund’s sub-par dividend yield, income-seeking investors would be wise to look elsewhere.
However, for those looking for a tech-focused ETF with a low expense ratio, this fund is one to keep in mind. Indeed, it could be an excellent vehicle for investors who may have missed Nvidia’s incredible five-year run but don’t want to miss out on the next big tech stocks.
Should you invest $1,000 in the Vanguard World Fund – Vanguard Information Technology ETF now?
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Jake Lerch has held positions at Adobe and Nvidia. The Motley Fool holds positions in and recommends Accenture Plc, Adobe, Advanced Micro Devices, Apple, Cisco Systems, Microsoft, Nvidia, Oracle and Salesforce. The Motley Fool recommends Broadcom and recommends the following options: long January 2025 calls of $290 on Accenture Plc, long January 2026 calls of $395 on Microsoft, short January 2025 calls of $310 on Accenture Plc, and short calls in January 2026 of $405 on Microsoft. The Motley Fool has a disclosure policy.
Missed Nvidia? Buy this excellent Vanguard ETF instead. was originally published by The Motley Fool
