Skyrocketing Investment Fund Within the Vanguard Portfolio, Offering Substantial Additional Gains
Buying into tech and semiconductor companies has brought substantial returns for investors recently. With businesses pouring money into artificial intelligence (AI) and upgrading their existing systems, there's been a surge in demand for various tech products and services.
However, deciding which tech stocks to invest in can be tricky. Some promising stocks have high valuations, while others might not yet be profitable or showing significant growth. To balance these growth chances while keeping risk low, consider investing in an exchange-traded fund (ETF). A potential long-term option could be the Vanguard Technology ETF (VT 0.07%).
This Vanguard fund surpasses S&P 500 returns over the past five years
Given the tech hype, it might not come as a surprise that the tech-focused Vanguard Technology ETF has delivered better results for investors than merely matching the S&P 500. Over the past five years, its total returns (including dividends) of nearly 170% are significantly higher than general index returns.
Examining the top holdings in the Vanguard fund explains its superior performance. Apple, Microsoft, and Nvidia are its leading holdings, making up 44% of the ETF's total weight. Despite the fund's diversity with more than 300 stocks in total, the performance of these three stocks has a significant impact on the fund's overall results, especially with Nvidia delivering 2,500% returns in the past five years.
Why investing in the ETF may not be too late
Even after significant gains within a short timeframe, there's still potential for the Vanguard Technology ETF to climb higher in value. This is mainly due to the expected rise in AI-related spending, which could result in strong gains for numerous top tech stocks. Although Nvidia might not replicate its past returns over the next five years, other stocks could fill the gap and propel the Vanguard fund further.
Technology research firm Gartner anticipates that next year, worldwide semiconductor revenue will increase by 14%, reaching around $716.7 billion. In the long run, industry analysts from Grand View Research predict that the entire AI market will grow at a compound annual growth rate of 36.6% up to the end of the decade.
Various projections may differ, but one thing is consistent: AI spending is likely to increase in the near future. Consequently, the Vanguard Technology ETF, which is benefited by AI-related spending, might have more room for growth despite its existing strong results.
Should you include the Vanguard Technology ETF in your portfolio today?
Investors seeking tech stock exposure can benefit from the Vanguard Technology ETF's diverse mix of investments while charging a fairly low expense ratio of 0.10%. However, you should be comfortable with the fund's heavy emphasis on the three most significant and most valuable global stocks, which might face corrective movements in the near future.
As long as you're prepared to hold the fund for several years, it can continue to be a good investment to buy and hold. Just be prepared for some volatility given the substantial gains tech stocks have made recently, coupled with the potential for future adjustments in investor pricing for these stocks.
Given the predicted growth in AI-related spending and the semiconductor market, investing in tech stocks, such as those in the Vanguard Technology ETF, could be a smart move for those looking to diversify their finance portfolio. With the ETF's heavy investments in tech giants like Apple, Microsoft, and Nvidia, investors have the opportunity to capitalize on their potential growth, even if Nvidia's past returns may not be replicated in the future.
To further increase the potential returns, numerous top tech stocks could contribute to the ETF's growth, potentially filling the gap left by Nvidia's potential decrease in returns. As a result, the Vanguard Technology ETF could continue to climb in value, making it a potential long-term investment for those who are comfortable with the fund's high emphasis on a few tech companies and the volatility that comes with investing in the tech sector.
