Motley Fool Picks VGT as Better Tech ETF for AI Over IYW

Motley Fool contributor Selena Maranjian identified Vanguard Information Technology ETF (VGT) as the better tech ETF for AI exposure compared to iShares U.S. Technology ETF (IYW) on October 10, 2024. Maranjian reviewed holdings and sector weights in her analysis published via The Motley Fool.

The Crypto Fear & Greed Index registered 29 on October 10, 2024, according to Fear & Greed Index data. Bitcoin traded at $76,067 USD, down 1.9% from the prior session with a $1,522.8 billion market cap. Ethereum declined 2.9% to $2,263.53 USD, holding a $273.2 billion market cap.

VGT Delivers Broad Tech Exposure

Vanguard ETF VGT tracks the MSCI US Investable Market Information Technology 25/50 Index, per Vanguard VGT profile updated September 30, 2024. The fund includes 311 large-, mid- and small-cap technology stocks. Nvidia Corp. (NVDA) commands the top spot at 18.2% weight, followed by Apple Inc. (AAPL) at 15.8% and Microsoft Corp. (MSFT) at 13.4%.

VGT maintains an expense ratio of 0.10%. Assets under management hit $72.4 billion USD as of September 30, 2024. Year-to-date through October 10, VGT returned 28.5%, per Morningstar Direct data.

IYW Concentrates on Tech Giants

iShares IYW follows the Dow Jones U.S. Technology Index, according to iShares IYW product page dated September 30, 2024. The ETF features 141 holdings dominated by large-cap names. Apple leads at 17.4%, Nvidia follows at 15.8% and Microsoft at 14.2%.

IYW carries a 0.39% expense ratio. Assets reached $19.1 billion USD. Year-to-date performance stood at 26.2% through October 10, 2024, per Morningstar.

Performance Comparison Highlights VGT Edge

VGT outperformed IYW over five years with 20.1% annualized returns versus IYW's 19.3%, according to ETF.com analyst data through September 30, 2024. VGT's broader diversification reduced volatility, posting a Sharpe ratio of 1.12 compared to IYW's 1.05.

Both ETFs captured AI-driven gains. Nvidia's 150% year-to-date surge through October 10 boosted holdings. VGT's mid-cap exposure added 12% from firms like Palantir Technologies Inc. (PLTR).

AI Sector Breakdowns Differ

VGT allocates 28% to semiconductors, 28% to software and 17% to IT services, per Vanguard disclosures. This mix targets AI chipmakers, enterprise software and cloud providers.

IYW weights 58% in semiconductors and 22% in software, per iShares factsheet. Concentration amplifies gains from leaders but heightens single-stock risk. Analyst Maranjian noted VGT's balance suits long-term AI investors.

Expense Ratios Impact Long-Term Returns

VGT's 0.10% fee saves investors $290 annually on $100,000 versus IYW's 0.39%, per fee calculator from Personal Capital advisor tools. Over 10 years at 10% returns, this compounds to $3,200 more in VGT.

Lower costs align with Warren Buffett's index fund advocacy, as quoted in his 2014 Berkshire letter: "Consistently buy an S&P 500 low-cost index fund."

Market Context Fuels ETF Demand

Bitcoin fell from its 2024 peak of $73,750 USD in March. Crypto volatility pushed $5.2 billion USD into tech ETFs in Q3 2024, per ETF.com flows report from director Caroline Hill.

Nvidia shares climbed 150% year-to-date through October 10. Institutional inflows hit $12.4 billion USD into AI-related tech funds, per VettaFi data.

Investor Strategies for VGT and IYW

Diversified portfolios allocate 10-20% to tech ETFs, per Morningstar portfolio strategist Amy Arnott. VGT fits core holdings; IYW suits satellite positions.

Monitor Federal Reserve rates. A 25-basis-point cut on October 30, 2024, projected by CME FedWatch, boosts growth stocks. Both ETFs position investors for AI's 30% CAGR through 2030, per McKinsey Global Institute.

Motley Fool analysis favors VGT as the better tech ETF for AI exposure, citing balance of exposure, costs and performance.