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The Vanguard Information Technology ETF is a large cap focused fund offering exposure to the U.S. Technology sector and really, not much else. If you’re looking for something more broad, you’ll probably want to keep searching. However, if you’re in need of tech exposure within the portfolio, you might be well served to see how VGT can drive a portfolio exponentially higher. In the next few paragraphs, I’ll dive into everything I know about the Vanguard Information Technology (VGT) ETF to hopefully assist you in deciding if this ETF is worth your consideration.
Post Agenda
- Overview of Vanguard Information Technology (VGT) ETF
- Key Features of VGT
- Management Strategy
- Historical Returns
- Pros & Cons of VGT
- Investor Suitability
- Final Thoughts
Overview of Vanguard Information Technology (VGT) ETF
Vanguard launched this Information Technology ETF in 2004 just a few years before one of the worst financial crises in many investors lifetimes. During that unfortunate time the VGT ETF declined by nearly 50% but what it did after that has been absolutely incredible, rocketing higher approximately 1,500%. To put that number into perspective, every $100 dollar investment in 2009 would now be worth somewhere near $1,500! $1,000 invested would be near $15,000, and $10,000 would be $145,000!
Absolutely astonishing results in just 16 years. For comparison, a $100 investment in to SPY at the same time would be about $950. Neither are bad that’s for sure but VGT is substantially above the most noteworthy index available. That index being what most everyone in the world views as the “stock market”.
Vanguard has compiled 324 assets into VGT with their top 10 holdings comprising about 60% of the total assets. It includes large cap companies like Apple and Microsoft but does also include some small and mid-cap companies as well, just to a much lesser degree.
Key Features of Vanguard Information Technology (VGT) ETF
The most important characteristic of VGT that investors should keep in mind prior to investing is that the ETF is strongly technology focused. If you were bullish in the tech sector, then VGT may be a perfect fit. However, if you’re bearish or unsure on the large cap technology space then you’ll probably want to avoid VGT completely. Additionally, technology stocks are known for their volatility and strong sell offs when the market becomes weak.
That said, there are several other characteristics that investors should be aware of. We’ll look at many of them below but, diversification, management strategy, historical performance, volatility, and suitability should all be considered against an entire portfolio prior to committing any capital.
Management Strategy
VGT is a passively managed fund tracking the MSCI US Investable Market Index/Information Technology 25/50. That was a mouthful, so I took a closer look at that index’s fact sheet to see if anything glaring stood out. The Information Technology index from MSCI is designed to capture, in their words, “the large, mid, and small cap segments”. And while that’s true, it is slightly misleading with a substantially heavier weighting to large cap equities. That said, anyone considering an investment here would do well to dig even deeper and understand as much as possible.
Vanguard seeks to fully replicate the MSCI index with VGT by investing in the stocks from that index. Though, in some cases, the fund may select a subset of stocks from the index that best capture it’s key characteristics. This can be good or bad but if history is any indication then I’d personally bet there isn’t much to be concerned over in this regard.
Overall, the Vanguard Information Technology (VGT) ETF has made good on it’s low expense ratio and passive management approach. By leveraging these features against the U.S. Technology Sector VGT has been able to deliver returns that closely mirror the underlying index.
Historical Returns
The Vanguard Information Technology (VGT) ETF has demonstrated impressive historical returns, making it compelling to investors wanting technology exposure. Over the past 2 decades, and investment into VGT would have returned above 1,500% with an annualized return of about 15%.
That said, investors in VGT should be prepared for drawdowns. The fund experienced a -50% maximum drawdown through it’s history and took about 39 months to recover from the decline.
Long Term Growth
Over a 20 year period, VGT achieved a compound annual return of 14.64% with a standard deviation of 19%. Meaning, VGT has demonstrated significant growth but also a higher volatility when compared to more conservative investments.
Recent Performance
Over the past 5 years, VGT has delivered a total return of 194% with $100 invested in 2018 growing to about $294 by early 2025. Reflecting the strong growth trajectory of the Technology Sector during this stellar period.
Yearly Returns
VGT has shown variability in yearly returns over the past 5 years. Again highlighting the inherent volatility within the sector. For example, in 2020 VGT returned 30%, in 2021, 46%, and in 2022 a decline of -29%. Underscoring the importance for a long-term investment horizon.
Dividend Yield
While not a dividend focused fund, VGT does offer a meager dividend yield. Currently, a yield of 0.50% can be obtained. However, for patient investors that yield rose as high as 1.20% during the 2022 decline. Still, a small income that may be reinvested back into VGT to aid potential investors in compounding efforts.
Pros & Cons to Vanguard Information Technology (VGT) ETF
VGT is an increasingly popular ETF for investors seeking tech exposure. However, there are some key pros and cons to consider prior to investing:
Pros
- Growth Potential: VGT is designed to grow at a pace that exceeds the broader market.
- Low Expense Ratio: At just 0.10% VGT is a competitively priced ETF.
- Diversified: While VGT is concentrated in the top holdings, it still offers exposure to over 320 different stocks.
- Reputation & Management: Vanguard is a well-respected financial institution. Known for reliable management and low-cost investment products.
Cons
- Concentration Risk: Over 50% of VGT’s assets are invested in it’s top 10 holdings.
- Low Dividend Yield: A yield generally less than 1%.
- Volatility: VGT is inherently more volatile than broader market funds.
- Market Risk: The technology sector experiences larger drawdowns than broader market funds.
Investor Suitability
Investors should consider carefully their risk tolerance prior to an investment in Vanguard Information Technology (VGT) ETF. The suitability of this ETF will depend on several factors, including risk tolerance, investment goals, and portfolio make up.
Growth focused investors will quickly discover VGT is designed to grow and longer term investors will appreciate the quadruple digit returns over an investment lifetime. Still, the risks cannot be understated. If the market turns sour, VGT will decline precipitously, at least historically.
Considerations into an investment of VGT will likely center around sector concentration and those risks. It’s always advisable to limit allocation to lesser diversified funds but that does limit the upside as well. Perhaps the best approach would be to dollar cost average into the fund until a substantial decline occurred before committing the bulk of any capital being allocated.
In short, VGT is suitable for growth focused long term investors comfortable with higher volatility. Possibly best used as part of a broader investment strategy aimed at minimizing risks and maximizing returns.
Final Thoughts
In closing, the Vanguard Information Technology (VGT) ETF has been an excellent fund within my own portfolio. You can have a look at how it’s performing today within the Unqualified Portfolio. I continue to DCA into VGT waiting for a meaningful decline to deploy the lion’s share of my capital. Still, as of today, I’m more than happy with how it’s going. If you want to check out Vanguard’s website related to the fund here is the Vanguard Information Technology (VGT) ETF page as well.
That said, VGT is not without it’s risks and investors would be well informed to heed that warning. As mentioned, the tech sector kind of reminds me of 3x leveraged ETF’s, in that it explodes higher and lower dramatically given the market environment. Just without the drag on performance of leveraged funds.
Regardless, the proof cannot be ignored, VGT has performed remarkably well throughout the past 20 years and I personally expect that to continue. If they return even half the performance over the next 20 years I’d consider my own investment a success.
Until the next post.
God bless,
Jeff
