Passive investors looking to better capitalize on the AI boom may wish to consider Vanguard’s more aggressive, tech-focused ETF, the Vanguard Information Technology ETF (NASDAQ:VGT). Indeed, it’s been a bigger gainer than the S&P 500 in recent years, as the tech titans led the market to higher highs. While more tech exposure can beef up your total returns, extended valuations and “AI bubble” talk could make for tougher sledding on the way down. As a long-time S&P 500 beater, though, it’s not hard to imagine many investors are feeling tempted to skew and rotate funds into the VGT.
If not for the better recent gains, for the greater exposure to the “modern economy” plays. Indeed, there are many corners of the technology sector that growth-minded investors should seek out exposure. And with the VGT, most bases within the tech scene are covered, from e-commerce and the cloud to emerging themes like AI and the metaverse.
While I wouldn’t go as far as to say the VGT or the tech-heavy Nasdaq 100 represents the “new” S&P 500 for the digital age, I do think having some exposure, in addition to a broad total market or S&P 500 ETF, can make a lot of sense if you’re confident in tech’s ability to lead for longer.
In any case, here are three reasons investors may wish to consider future-proofing your portfolio with VGT in 2025 despite growing fears of an overextended AI trade:
It’s a better way to bet on tech than the Nasdaq 100
First, I believe that the VGT is a far better way to bet on tech than the Nasdaq 100. While the Nasdaq 100 is heavy on the high-tech innovators, it excludes the impressive tech firms found on the NYSE exchange. Indeed, I find there to be little reason to prefer a Nasdaq-traded technological innovator over one that trades on the NYSE. While most tech titans trade on the Nasdaq instead of the NYSE, some exceptions exist.
Most notably, agentic AI innovator Salesforce (NYSE:CRM) and cloud juggernaut Oracle (NYSE:ORCL), are listed on the NYSE and are thus excluded from inclusion into the Nasdaq 100. These dominant firms are fantastic innovators to which growth investors should want exposure. You’ll get a piece of each with the VGT, not the Nasdaq 100.
Additionally, it’s worth noting that much of the Nasdaq 100 isn’t invested in tech names. You’re getting tech-heaviness, but close to half of the index is invested in non-tech names. At the end of the day, the Nasdaq 100 is tech-heavy but not tech-exclusive. If you want to “juice” your portfolio with tech, the VGT is probably a better option, as it’s all-in on tech, with much of the exposure coming from the semis.
It’s heavy on Apple, Microsoft, and Nvidia.
The Magnificent Seven’s uplifting effect on the market has been much talked about in recent months. The case for a broadening out of the rally (think a growth-to-value rotation) now seems doubtful, especially if the “bigger is better” sentiment causes investors to plow cash into the Magnificent Seven names. After all, it’s the trade that’s been working.
While the Magnificent Seven are responsible for much of the gains in recent years, some of the lagging names within the cohort have been dragging. Apart from Nvidia (NASDAQ:NVDA), the Magnificent Seven’s biggest hasn’t necessarily been the best.
Notably, Apple (NASDAQ:AAPL) is up just 32% in the last three years, paling compared to the Nasdaq 100 and the S&P 500. AI titan Microsoft (NASDAQ:MSFT) hasn’t done anything in the past year, while the S&P 500 surged by double-digits. Arguably, these names haven’t been magnificent enough. In any case, I expect such dominant tech leaders to step up when the hotter members of the Mag Seven eventually take their breathers.
In any case, the Mag Seven stocks could continue to steer the wheel for the rest of the market for the long haul. Perhaps there’s a reason why CNBC personality Dan Nathan refers to the top tech titans as the Fateful Eight, given the fate of the market is in the hands of the eight names, which includes Broadcom (NASDAQ:AVGO) alongside the Magnificent Seven.
What about the rest of the Mag Seven?
Regarding the VGT, it’s heavy on the top three members of the Mag Seven by market cap, with more than 44% allocated to Apple, Nvidia, and Microsoft. However, some of the other Mag Seven names seem nowhere to be found in the fund, as they’re not technically classified as information technology firms. If that’s a deal-breaker for you, perhaps the Nasdaq 100 is the better way to go.
Lower fees than almost any other high-tech ETFs
Finally, the VGT has a low expense ratio of 0.09%, making it one of the most affordable ways to inject your portfolio with high-tech exposure. Compared to the Nasdaq 100 offerings, which tend to have expense ratios in the ballpark of 0.2%, the VGT is a more cost-effective solution for passive investors keen on minimizing fees.
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