Is Vanguard Information Technology Index Fund the best technology ETF?

Technology has been a dominant force in the stock market for the past two decades. Some of the most valuable companies in the world, such as Nvidia, Meta platformsand Advanced Micro Devicesbelong to this high growth sector.

As a result, many of the best-performing exchange-traded funds (ETFs) in 2023 have an undeniable technology bias. Technology’s appeal among growth investors isn’t entirely surprising, given that technological innovations — such as social media, smartphones and high-performance computing — have been radically changing our world since the early 2000s.

Which tech ETF is the best buy?

While there are plenty of contenders, the three most popular passively managed ETFs in this category are Fidelity MSCI Information Technology Index ETF (FTEC 0.84%)on Select Technology Sector SPDR Fund (XLK 0.85%)and Vanguard Information Technology Index Fund (VGT 0.92%). These three technology-oriented ETFs are valued for their low expense ratios and remarkable outperformance compared to S&P 500. Here’s a comparison of these three popular technology ETFs.

Image source: Getty Images.

A comparison

The table below outlines the most important metrics for each fund.

ETFs

Benchmark

Expense ratio (percentage)

Yield (percentage)

Alpha

Beta

10-year total return (percentage)

FTEC

MSCI USA IMI Info Tech

0.08

0.66

6.41

1.24

510.3

XLK

S&P Tech Select Sector

0.10

0.76

9.13

1.23

536.4

VGT

MSCI US IMI/Info Tech

0.10

0.69

6.16

1.24

523.7

FLIGHT*

S&P 500

0.03

1.48

217

Alpha and beta refer to the fund’s performance against a relevant benchmark over the past 36 months. The Vanguard 500 Index Fund (FLIGHT 0.78%) tracks the S&P 500. It serves as the performance benchmark in this comparison of technology ETFs. All fund data courtesy of Charles Schwab.

Technology stocks have been the main contributors to the US market’s impressive performance in recent years, and these three ETFs have captured that growth remarkably well. FTEC, VGT and XLK returned more than twice VOO, the ETF that tracks the S&P 500 index.

They did this despite having higher costs and lower payouts than VOO. This demonstrates the enormous growth potential of technological innovation.

winner?

Among these three technology ETFs, however, one outperforms the rest: XLK. XLK had the highest total return (assuming dividends are reinvested and pre-tax) compared to FTEC and VGT over the past 10 years. It also has a similar cost-to-earnings ratio as its peers in the category. Therefore, XLK earns the top spot in this comparison, even though it competes with one of the best-performing Vanguard ETFs, which often outperform in their categories.

However, investors should not overlook any of these excellent technology ETFs. All three have significantly outperformed the S&P 500 over the past 10 years, and the differences in returns between them are not particularly large.

Randy Zuckerberg, former Facebook CMO and spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. George Budwell has positions in the Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Nvidia and the Vanguard S&P 500 ETF. The Motley Fool recommends Charles Schwab and recommends the following options: short December 2023 $52.50 puts on Charles Schwab. The Motley Fool has a disclosure policy.

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