Software stocks are in a quiet crisis that most investors haven’t fully reckoned with. The S&P 500 Software Index is down 22% year-to-date, a collapse that would normally drag any tech-heavy fund down with it. Yet Vanguard Information Technology ETF (NYSEARCA:VGT) is down 8% year-to-date, a gap that tells a specific story about how this fund is built and why it’s holding up where others aren’t.
What VGT is built to do
VGT tracks the MSCI US Investable Market Information Technology 25/50 Index, which means it is a pure-play U.S. technology sector fund with no geographic diversification, no fixed income, and no defensive hedging. Practically 100% of the portfolio sits in information technology.
The fund’s purpose is to give investors broad, low-cost ownership of the U.S. tech sector, from the largest semiconductor companies down to smaller specialized software and infrastructure firms.
The return engine here is the underlying businesses themselves. There are no options overlays, no leverage, and no synthetic instruments. The expense ratio is just $9 per $10,000, and portfolio turnover is 0.08, meaning the fund buys and holds rather than churning positions. With over 400 holdings, it captures the full breadth of the sector without requiring investors to make individual stock calls.
Why the fund is weathering the software selloff
The key to VGT’s relative resilience lies in its top two holdings. NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) sits at 18% of the fund, and Apple (NASDAQ:AAPL) represents another 15.8%. Together with Microsoft (NASDAQ:MSFT) at 10.4%, these three positions account for 44% of the fund. Neither NVIDIA nor Apple is a pure software company, which matters enormously in the current environment.
NVIDIA was a risk factor earlier in the year, but the valuation picture has shifted. The stock now trades at approximately 22 times forward earnings, a level that reflects the company’s scale without demanding the kind of speculative premium that made it vulnerable.
Q4 FY2026 revenue reached $68.13 billion, up 73.2% year-over-year, with Data Center revenue alone hitting $62.31 billion, a 75% year-over-year gain. CEO Jensen Huang described the moment plainly on the earnings call: “The agentic AI inflection point has arrived. Grace Blackwell with NVLink is the king of inference today, delivering an order-of-magnitude lower cost per token.” For Q1 FY2027, the company guided to approximately $78 billion in revenue.
Apple functions as the steadying weight in the portfolio for obvious reasons. The company’s installed base surpassed 2.5 billion active devices, a recurring revenue platform that insulates it from the kind of quarter-to-quarter volatility that punishes pure software names.
A decade of compounding, regardless of market conditions
Beyond the top holdings, VGT’s breadth gives investors exposure to the full architecture of the AI economy. The fund holds semiconductor equipment makers, cloud infrastructure providers, cybersecurity platforms, and emerging quantum computing positions, all in small, diversified slices. No single mid-tier holding is large enough to meaningfully damage the fund if it fails, but collectively they participate in the sector’s long-term growth.
VGT is up 24.9% over the past year and has returned 630% over the past decade. That ten-year figure represents compounding across multiple market cycles, including rate hike environments, pandemic dislocations, and AI-driven re-ratings.
The tradeoffs to keep in mind
VGT concentrates entirely in one sector. Its concentration in a single sector means a sustained tech downturn hits the entire portfolio with no cushion. The fund carries no bonds, no international exposure, and no defensive sectors to absorb shocks. Investors who hold VGT as their primary equity position are making a concentrated sector bet, even if the 400-plus holdings create the feeling of diversification.
Concentration at the top is the second constraint. When NVIDIA represents nearly a fifth of the fund, its price action drives the ETF’s short-term performance regardless of portfolio intent.
The dividend yield of just 0.38% makes VGT entirely unsuitable as an income vehicle. This is a growth fund, and investors who need current income should look elsewhere.
Investors who want concentrated exposure to the U.S. technology sector at minimal cost get exactly that with VGT, while those expecting meaningful income or protection during a broad tech correction will find neither here.
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