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3 Largest Tech ETFs to Supercharge Your Portfolio: QQQ, VGT, and XLK



In my previous blog post, we explored the composition changes of the S&P 500 Index, the most well-known barometer of the U.S. stock market, over the years. Now, in 2024 Technology represent the largest segment of  the S&P 500 Index, accounting for nearly 30% of the index. For those who want even greater exposure to Technology we will review the 3 largest broad technology ETFs by assets under management (AUM): QQQ, VGT, and XLK.

 

What?

Let's look at a quick summary of these 3 ETFs. AUM values are as of 6/14/2024 and 10-year annualized yields are as of 3/31/2024.

 

Invesco QQQ Trust (QQQ)

  • Index: Tracks the Nasdaq-100 Index, covering 100 of the largest non-financial companies listed on the Nasdaq. It is a tech-heavy ETF, rather than a tech-only sector ETF.

  • Inception: 03/10/1999        

  • AUM: $283 billion

  • 10-Year Annualized Yield: 18.6%

  • Expense Ratio: 0.20%

  • % of portfolio in top 10 holdings: 50.10%

  • Morningstar Rating: 5 Stars (the best possible rating)

 

Vanguard Information Technology ETF (VGT)

  • Index: Follows the MSCI US Investable Market Information Technology 25/50 Index. This is a true tech-only sector ETF, compared to tech-heavy QQQ. It covers broad sub-segments within the Technology sector.

  • Inception: 01/26/2004

  • AUM: $73 billion.

  • 10-Year Annualized Yield: 20.4%

  • Expense Ratio: 0.10%

  • % of portfolio in top 10 holdings: 58.80%

  • Morningstar Rating: 5 Stars (the best possible rating)

 

Technology Select Sector SPDR Fund (XLK)

  • Index: Tracks the Technology Select Sector Index. Just like VGT, it is a pure-play technology ETF with a broad coverage of technology sub-segments.

  • Inception: 12/16/1998

  • AUM: $70 billion.

  • 10-Year Annualized Yield: 20.7%

  • Expense Ratio: 0.09%

  • % of portfolio in top 10 holdings: 68.36%

  • Morningstar Rating: 5 Stars (the best possible rating)

 

So What?

Understanding the differences and strengths of these top technology ETFs can help investors make informed decisions:


QQQ:

  • Strengths: Offers broad exposure to tech giants and significant non-financial companies listed on the Nasdaq. High liquidity and a solid performance history.

  • Considerations: Slightly higher expense ratio and less focused purely on tech compared to VGT and XLK.

VGT:

  • Strengths: True tech-only exposure with broad coverage across various sub-segments of the technology sector. Lower expense ratio compared to QQQ, and a strong 10-year annualized yield.

  • Considerations: Higher concentration (over 58%) in the top 10 holdings than QQQ, which can mean greater risk if those companies underperform.

XLK:

  • Strengths: Similar to VGT, XLK provides pure-play technology exposure with an emphasis on the largest tech firms. Lowest expense ratio among the three, and the highest 10-year annualized yield although VGT and XLK have similarly low expense ratios and high 10-year annualized returns.

  • Considerations: The highest concentration (over 68%) in top 10 holdings among the 3 ETFs, which could increase volatility but also potential for higher returns.


Now What?

For investors looking to capitalize on the tech sector, here are some actionable insights:


Choose Based on Investment Goals:

  • For a blend of tech and other large non-financial companies with strong historical performance, QQQ is an excellent choice.

  • For a pure tech sector focus with broad sub-segment coverage, higher performance, and lower expense ratios, both VGT and XLK are equally great options.

  • If you prefer higher concentration in the top 10 holdings for potentially higher returns with greater volatility, XLK will suit your needs.

  • If you seek high returns with a bit less volatility and a lower concentration in the top 10 holdings, VGT is the better fit.

 

Stay Informed

One of the key advantages of investing in ETFs is that they offer a hassle-free way to gain exposure to the tech sector without the need for constant market monitoring. However, it's still beneficial to stay aware of major tech industry trends and economic factors that could influence the broader market. Periodically reviewing your investments and making adjustments as needed can help you stay aligned with your financial goals while managing risks effectively.

 

Concluding Remarks

Investing in technology ETFs like QQQ, VGT, and XLK provides a robust avenue for gaining exposure to the dynamic and fast-growing tech sector. Each ETF has its unique strengths, and understanding these can help you align your investment strategy with your financial goals and risk tolerance. Diversification and staying informed are essential for long-term investment success.

 

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