Did you know that there is an institutionalized fund in the country that seeks to track the market index of the information technology sector? One of the greatly renowned funds is the Vanguard Information Technology Fund. Because of its various holdings and services in the market, its low-cost ratios, and resilience whenever the market takes a hit, this ETF is something that you would want to consider buying and engaging your assets with.
But what is this infotech ETF, and how can this help you as an investor? Read on to find out.
Vanguard Information Technology ETF
Vanguard information technology ETF (also known as VGT ETF or sometimes VITAX ) is one of the most renowned funds that are passively exchanged and passively traded in the market. You can also buy and sell these shares just like individual stocks. The VGT is one that tracks the information and performance of the technology sector, whose holdings give weight to the market cap. This means the bigger the company in the sector, the bigger the percentage allocated to the fund.
The technology sector is one that covers a wide array of companies, including tech-forward service companies, chipmakers, e-payment processing industries, as well as software and hardware companies.
Also, the VGT is a fund that gives opportunities to investors in getting exposed to the largest tech companies in the sector–so if you would want to have a diversified financial-tech portfolio, Vanguard will work best for you.
Why do You Need to Invest in Vanguard Information Technology ETF?
What makes the Vanguard Information Technology Index Fund interesting is that the assets that it holds include stocks that belong to highly-concentrated tech areas inside and outside of the United States.
They hold tech stocks for small and large companies, but the large ones provide the highest returns and best performances. They also track company indexes that work around the industries of tech-based services and products, as well as tech-based research and development industries.
Vanguard considers the Info Tech Index Fund as one that’s aggressive, and would work well for those investors with a rather high-risk tolerance. The high risks would pose a mixture of both growth and decline on its share prices, which is why it is a good choice if you think that long-term investment is something that would interest you.
One more thing that you would need to know is that Vanguard’s funds are known to have low-cost indexes, amidst a wide selection of both exchange-traded funds as well as mutual funds.
What else are the reasons why we should place our investment in this VGT Index Fund? There are four main reasons:
1) Investment Strategy
An investment strategy is key when it comes to making sure we spend less on overhead expenses, with the most efficient yields and gains at the same time. This Vanguard Info Tech Fund is one that tracks performances and invests on all of the assets included in the stocks that comprise the benchmark index.
Because of the tracked stocks in this index, it serves as a good investment strategy for those who are looking for more extensive exposure in the Information technology sector in and out of the United States.
2) Role in Portfolio
Because of being exposed to a wide array of financial portfolios in the market, Vanguard Technology ETF becomes something highly supplementary to parts of the stock allocation for the investor portfolio. Again, the more exposure to the technology sector, the better the funds’ role becomes for your financial portfolio.
3) Easy Management
Even if this technology ETF is considered to be one that’s aggressive and poses a higher risk for investors, the fund is also considered as one that’s relatively easy to manage. With a low cost and expense ratio, investors are given the opportunity to manage their funds accounts for themselves.
4) Top Performance
Vanguard Information Technology ETF VGT is also considered to be the prime performer in the market, after having yielded 34.72% of returns just last year. Furthermore, it also yielded a remarkable 23.6$% of returns over the past three years, and 23.56% throughout the past five years. Decade-wise, the fund performed with a yield of 18.95%, given the ten-year data.
As provided by U.S. News.com, the following table shows the performance of the Vanguard fund:
|1 month||3 month||6 month||1 year|
|MSCI ACWI NR USD||12.33||6.06||22.29||15.01|
|Rank in Category||69||88||65||59|
|+/- Category (ST)||-2.31||-7.64||-5.98||-6.32|
|+/- MSCI ACWI NR USD||0.17||-3.87||6.68||28.45|
Things to Consider when Investing in Vanguard Information Technology ETF
1. Costs and Fees
One thing that you should consider is that there are mutual fund charges as well as expense costs that may hit investors who are in possession of mutual funds. It should be understood that when you run a mutual fund, it will always include operational costs–which include transaction costs, fees for investment advising, as well as expenses on distribution and marketing ventures. Various funds make investors pay for such overhead expense ratio 0 in a wide array of ways. Let’s take a look at a couple of fees:
- Maximum Sales Fees
The initial sales fees incurred by investors are usually those that are being paid to brokers in the form of a commission. On the other hand, deferred fees are charges incurred when investors choose to redeem their shares from the market.
- Maximum Fees
Maximum fees are those being charged to fund holders every year (which you could think of just like some sort of annual membership fee).
- Actual Fees
Vanguard has a very low net expense ratio of 0.1%, where the average expense ratio in the market is at a staggering 1.26%.
Management fees for the fund are pegged at 0.09% amidst the category average of 0.78%.
- Total Cost Projections
Total cost projections are those that predict how much you, as an investor, can expect to spend in expenses/sales-related charges and fees.
- Minimum cost on investments
When opening an account for investing, some funds would require a minimum cost on investments, which serves as an initial and principal payment to the fund.
2. Risk Considerations
The next crucial thing that you should consider when engaging your assets in the stocks is the risk. In the context of the Vanguard fund, you should know that it focuses primarily in the information technology sector. Therefore, if there are funds out there that give focus on other equity sectors outside their domain which is on information technology, then it is prone to risk that’s particular to that particular investment.
Investors, in turn, will experience higher volatility because of the lack of diversification caused by the issues impacting the specific sector. Consequently, the impacted sector will manifest into poor performance
- Volatility Measurements
Volatility measurements are those that serve as a mirror towards risk and uncertainty on the value of the underlying securities involved.
Vanguard’s information technology fund has a standard deviation of 21.108 this year, which shows how varied the returns of the fund are, relative to its average performance over time. Therefore, the higher the returns of the fund, the greater the standard deviation it will gain.
Furthermore, the Sharpe Ratio of the Vanguard Information Technology Fund ETF is pegged at 1.04. The Sharpe Ratio is used in measuring how much risk can an investor expect to take when calculating investment returns.
Lastly, the Mean of the Vanguard Information Technology is set at 1.964 this year. The mean is a metric that makes us understand how well the Vanguard fund performed given data on annualized returns.
- Modern Portfolio Theory Statistics
Theory statistics are important in understanding the competitiveness of a fund. With modern portfolio theory statistics, comparisons can be made in checking excess returns of the funds vis-a-vis the performance of a benchmark index. Data for this metric are in reference to three years of data on monthly returns.
There are three measures to identify such data: the R-squared, the beta, and the alpha.
What you Need to Remember
One interesting fact: the previous years have been very beneficial to most of the tech-concentrated financial portfolios. Just last year, the Vanguard Information Technology ETF has successfully gained a 48.8% dividend yield. This overpassed the S&P 500 returns on net assets, with only 28.9% that year.
The Vanguard Information Technology ETF is a cap-weighted financial portfolio as well, despite its median market cap that is topping one hundred seventy billion dollars, which is the 10 largest holdings account, taking up 57% of the financial portfolio.
You also need to remember that Microsoft and Apple Inc are the top two amongst the top 10 holdings in the ETF industry net assets. Because of this, they both serve as the United States’ most valuable publicly listed companies. These companies hold more than 33% of the investments and the ETF portfolio.
Aside from Apple, and Microsoft, you should know that Visa Inc and Mastercard also fall under the next two of the largest holdings in the market. They are benchmarks that the Vanguard ETF is also tracking, as they are heavily involved in electronic payment processing, software development, among others.
Even if Vanguard ETF is an aggressive fund, you won’t have to account for the fall or the rise of the outstanding shares because it works very similarly to how we perceive open-ended mutual funds. The cash balance expands and contracts organically so you wouldn’t have to make active trades all the time, as opposed to a traditional index fund. Plus, the Vanguard ETF has a 5% portfolio turnover rate.
The Vanguard ETF is one that gives investors the best of both worlds. They offer investors a wide array of proven and strong technology-based stocks in the market with very low expense cost ratios.
The Vanguard ETF will be volatile if the stock market goes through a crisis, and the downfall can suffice if investors trade out of tech stocks. Regardless of all these considerations, if you track the performance of the fund, you will realize that at the end of the day the Vanguard Information Technology ETF is beneficial to the average investor and is worth the buy.
Given the costs, the exposure, and the opportunities, in the long run, this ETF will totally help boost your asset class, as well as your portfolio.
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