Is VGT a Good ETF? | A Complete Overview
Image Source: Vanguard (VGT) Fact Sheet
The Vanguard Information Technology ETF seeks to track the performance of an index that tracks stocks in the information technology sector.
VGT is a low cost passively managed index ETF, meaning you will not pay much fees as an investor in the fund.
If you are seeking to invest in an ETF that attempts to outperform the market, VGT is an excellent growth ETF for you to buy.
VGT Overview
Dividend yield: 0.83%
Expense ratio: 0.10%
10 year total return: 121.8%
The expense ratio of VGT is 0.10%, which is slightly higher than some of Vanguard’s other funds.
However, compared to most ETFs available, it is still an excellent deal for investors looking for passive exposure to information technology companies.
The information technology sector comes with a higher risk than other Vanguard funds like the VOO since technology companies are focused more on growth.
However, the higher risk always comes with a higher reward potential in the stock market, which is a great way to attempt to outperform common indices like the S&P 500.
Pros and Cons of VGT
To help you determine if VGT is the right ETF for your portfolio, consider the following pros and cons.
Pros
High reward potential
Compared to dividend or value funds, VGT is more of a growth ETF, which will outperform the market during bull runs.
Vanguard is a reputable company
Vanguard provides some of the greatest funds for retail investors to buy. The company’s founder, John Bogle, has improved retail investing substantially by lowering fees around the industry.
Cons
Higher expense ratio than common Vanguard funds
VGT’s expense ratio is higher than other Vanguard funds like VOO.
Low dividend yield
Another con is that the dividend yield is less than 1%. However, investors do not buy this fund to receive high dividend yields. Instead, they are looking to generate more capital gains than the overall market, and the dividend is a nice cherry on top.
Concentrated holdings
Over 50% of VGT’s holdings are held in the top 10 stocks, making it much less diversified than most ETFs.
VGT Historic Performance
Over the last ten years, VGT has provided an annual return of around 18%. For comparison’s sake, Vanguard’s S&P 500 ETF, VOO, has provided an annual return of about 12.74% over the past ten years.
While VGT has outperformed the S&P 500 in the last ten years, it is important to note that historical performance does not align with future performance.
In the last ten years, the stock market experienced a massive bull run, causing the price of growth companies and ETFs to outperform the slow-moving value stocks.
However, as the market regimes change, this growth outperformance is not guaranteed to follow suit for the next ten years.
VGT’s Top 10 Holdings
VGT contains over 350 stocks in its holdings. However, over 50% of its capital is in the top ten holdings.
VGT is a growth ETF, so it attempts to outperform the overall market by using less diversification. It focuses primarily on the companies it believes are safe yet have the potential for excellent returns.
1- Apple
Weight in fund: 22.59%
Apple is the highest allocation in VGT, with a massive allocation of over 22%, which is relatively high for most ETFs to allocate to any single company.
2- Microsoft
Weight in fund: 16.94%
Microsoft is next on the list with around a 16% allocation. Microsoft is a well-diversified company that operates in various industries and has nearly a monopoly on some of its services, like Mircosoft Office.
3- Nvidia
Weight in fund: 3.48%
After the top two holdings, the allocation percentage drops by a sizeable margin to around 3% from 16%. Nvidia is a leading semiconductor company that is also innovating in the AI space.
4- Visa
Weight in fund: 3.29%
Visa is a reliable company with solid growth potential and generates plenty of stable revenue from credit card transactions.
5- Mastercard
Weight in fund: 2.93%
Mastercard is Visa’s competitor, which also generates reliable revenue, but has more growth potential than its larger competitor, Visa.
6- Broadcom
Weight in fund: 1.97%
Broadcom is another large semiconductor company that offers data center, networking, software, broadband, wireless, storage, and industrial markets products.
7- Cisco Systems
Weight in fund: 1.94%
Cisco is a multinational digital communications company that develops software, networking hardware, and telecommunications products and services.
8- Accenture
Weight in fund: 1.85%
Accenture is an Irish company specializing in consulting and information technology services. It is a relatively large company with nearly a $200b market cap, making it a solid choice for the VGT ETF.
9- Salesforce
Weight in fund: 1.67%
Salesforce provides software that helps companies improve customer management with automated marketing and analytics features.
10- Adobe
Weight in fund: 1.55%
Adobe is the tenth largest holding in VGT, a software company that provides various video and photo editing products.
Is VGT a Good ETF? | Final Thoughts
As an overall product, VGT is an excellent ETF provided by a reputable company with low fees.
Whether it is a good ETF for your portfolio depends on various factors like your investment goals and holding period.
It is a solid investment if you try to outperform the common indices and can hold the ETF for more than a decade, it is a solid investment.
However, you must be comfortable taking on more risk in exchange for the higher reward potential.
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As Always: Buy things that pay you to own them.
-Josh
Blog Post: #075
