For investors who want to look beyond investing in benchmark index funds, the Vanguard Information Technology ETF (NYSE:VGT) has capitalized heavily on the tech wave to deliver staggering 25% annual returns over the past decade, easily outperforming broad market benchmarks.
The Tech Outperformance
Historically, large-cap U.S. stocks have generated an average annual return of around 10%. Even though the Vanguard S&P 500 ETF (NYSE:VOO) has posted a very strong 15% annual return over the last decade—weathering both the 2020 pandemic and the 2022 bear market—VGT has completely eclipsed those figures. As the data shows, it has returned roughly 25% annually.
This massive growth is primarily fueled by an artificial intelligence (AI) boom that has turned technology stocks into one of the broader economy’s most powerful earnings engines.
Recent performance metrics underscore this relentless market momentum; VGT is currently up 5.11% over the last month, 25.32% year-to-date, 40.03% over the past year, and a massive 132.04% over the last five years.
As per an expert, despite recent geopolitical tensions in the Middle East, the growth in these funds and stocks is fueled by earnings. “Geopolitics don’t drive this market, earnings do, and earnings are being driven by AI infrastructure spending that remains robust,” said, Luke Lango, technology analyst and publisher of Innovation Investor.
Concentration and Volatility Risks
However, these returns come with significant trade-offs that retail investors must carefully weigh. The short term can be volatile, and drawdowns of 10% or more are not uncommon within this fast-paced sector.
Furthermore, the fund’s extreme asset weightings present structural dangers for anyone seeking true portfolio diversification. Today, concentration has become a big risk as VGT has more than 30% of its assets invested in the combination of just two tech giants: Nvidia Corp. (NASDAQ:NVDA) and Apple Inc. (NASDAQ:AAPL). Overall, the top 10 holdings account for around 60% of the entire fund.
A Long-Term Holding Play
Despite these inherent risks, the underlying innovation narrative for tech remains robust. VGT is considered one of the best funds targeting the tech sector, provided investors understand the assignment.
Ultimately, the fund is meant for long-term holding periods to ride out short-term volatility and reward patient shareholders who can endure inevitable market fluctuations.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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