Artificial intelligence (AI) will transform the global economy. Market forecasts for its economic impact by 2030 range from optimistic projections of tens of trillions in gross domestic product (GDP) growth to conservative estimates of just half a percent. Despite these varying predictions, one thing remains clear -- AI will drive substantial economic change over the next few years.
As a result, AI may represent a once-in-a-lifetime type of opportunity for stock investors. But picking individual winners in this rapidly evolving space brings significant risks. One exchange-traded fund (ETF) offers investors broad exposure to this technological revolution while maintaining remarkable cost efficiency and a reasonable level of diversification.
Image Source: Getty Images.
The Vanguard Information Technology Index Fund (VGT -1.56%) combines established tech leaders and emerging AI innovators into a single, powerful investment vehicle. Let's examine why this fund deserves serious consideration from investors seeking exposure to technology's future.
A technology powerhouse
The Vanguard Information Technology Index Fund invests in 316 technology companies with a clear focus on software, hardware, semiconductors, and information technology (IT) services. The portfolio's concentrated nature shines through its top holdings, where technology titans Apple (16.2%), Nvidia (15.4%), and Microsoft (13%) command nearly 45% of its total assets.
These industry leaders sit at the forefront of AI development and deployment across the global economy. Nvidia dominates AI computing infrastructure through its advanced chips. At the same time, Microsoft embeds AI across its cloud services and software suite, and Apple advances AI through its virtual assistant technology and intelligent features across its ecosystem.
The Vanguard Information Technology Index Fund also includes other major technology companies in its top holdings. For instance, Broadcom (4.08%) adds semiconductor industry leadership while Salesforce (1.89%) represents enterprise software innovation in its diverse tech holdings.
Performance that speaks volumes
The Vanguard Information Technology Index Fund has rewarded investors with remarkable consistency, delivering eye-catching annualized returns of more than 20% over the past 10 years, substantially outperforming the benchmark S&P 500 over this period. This outperformance demonstrates the fund's ability to capture the enormous growth occurring within technology's most dynamic companies.
VGT Total Return Level data by YCharts
Keeping with this theme, the fund's recent performance shows even greater momentum than its historical average, posting a roughly 100% total return (including cash distributions and assuming reinvestment) since the start of 2023. As a bonus, the fund's rock-bottom expense ratio of 0.10% ensures investors keep more of these returns, paying just $10 annually per $10,000 invested.
The Vanguard Information Technology Index Fund's success stems from its proven ability to capture growth across the AI value chain, from established tech giants to emerging innovators. Moreover, its strong track record spans multiple market cycles, including periods of both tech enthusiasm and skepticism, underscoring the fund's resiliency despite its singular focus on technology.
Built for the long haul
The Vanguard Information Technology Index Fund sports a relatively low 12.7% annual turnover rate, minimizing trading costs and tax implications. This patient strategy allows its core holdings to compound their gains over time, while still maintaining the flexibility required to adapt to rapid technological shifts.
This feature is paramount in a field that's expected to evolve from basic AI chatbots to AI agents and physical AI within just the next two years. The Vanguard Information Technology Index Fund also provides ample exposure to AI-adjacent themes like quantum computing and advanced robotics.
While this Vanguard tech fund isn't exactly a bastion of diversification in the strictest sense, it does provide exposure to multiple technology subsectors, from application software (16.3%) to semiconductors (28.7%) and systems software (19.6%). The fund's broad net helps mitigate single-company risk while maintaining its focus on ultra-high-growth tech companies.
A compelling investment case
The Vanguard Information Technology Index Fund offers a powerful combination of established tech leaders and AI innovation potential. The fund's remarkably low costs, proven track record, and focused exposure to technology trends position it well for future growth.
As AI reshapes the global economy, this Vanguard fund provides investors with a straightforward way to participate in technology's evolution. So, for investors seeking broad exposure to tech's biggest opportunities, the Vanguard Information Technology Index Fund screens as a compelling option.
