VGT vs. VOO – Which Vanguard ETF to Choose?

If you are an avid investor, you might already know about Vanguard. Well, personally, I have been aware of Vanguard for a pretty long period. I really admire the services this issuer provides in its funds. Consistency is one point that amazes me every time.

Moreover, these two funds from Vanguard itself were in my mind for a very long time period for comparison. VGT and VOO are both well-performing ETFs. Both have a consistent past performance making them a good choice for future investment.

But, as you know that investments are subject to market risks, proper research is essential. And that’s what I did, and I extensively researched VGT and VOO to see where the differences lie.

I am actually glad that I researched them. They have differences in terms of diversification, expense ratio, holdings, performance, etc.

So, let me take you down the information lane now.

Key Takeaways

• VGT follows MSCI US Investable Market Information Technology 25/50 Index.
• VOO tracks the S&P 500 index from Vanguard.
• The expense ratios of VGT and VOO are varied, 0.10% and 0.03%, respectively.
• Both VGT and VOO are Passive Index-Based ETFs.
• The segment of VGT is U.S Technology, and VOO’s segment is U.S-Large Cap.

VGT vs VOO – The Difference and Similarities

I think it might help you if I list some differences and similarities between these two ETFs before proceeding to the composition and other factors.

Differences

Talking of the differences, the major one is between the indexes they track. VGT tracks the MSCI US Investable Market Information Technology 25/50 Index whereas VOO tracks the S&P 500 index. This means that VGT is tracking the higher growth index of information and technology companies. 

Therefore, this difference means that VGT will have much higher returns than VOO. But, the risk factor and volatility also increase.

Another difference between these two is in terms of their holdings. In terms of the number of holdings, VOO takes the lead here. VOO has 509 holdings, whereas VGT has 341. This is a significant factor to consider as it affects the level of diversification.

If you want to establish a diversified portfolio, then choosing a well-diversified fund will be ideal, right. So, in that case, for you, VOO might be the winner, but this analysis might not end that way. 

Therefore, having patience and reading the entire article is your key to the perfect selection.

Similarities

VGT and VOO both are from Vanguard, so it’s apparent that they will have similarities too, right? So, the first one is pretty obvious; both are Vanguard exchange-traded funds.

Another similarity is in terms of their expense ratios. Now you might think that VGT has a higher expense ratio, then why I have mentioned it in similarities. Well, they do have differences, but still, when compared to other ETFs of the same category, they both lay a pretty low burden on investors’ pockets.

Moreover, the other aspects of this analysis are discussed below:

VGT vs VOO – Composition

VOO and VT both have the same issuer, but there are a few differences in their composition, which I tried to explain through the tables.

VGT (Vanguard Information Technology ETF)

The Fund aims to track the performance of the information technology stock benchmark index. The MSCI US Investable Market Information Technology Index is an index that includes stocks from a wide range of U.S. companies. It includes large, mid-size, and small firms within the information technology sector.

VOO Vanguard S&P 500 ETF

VOO’s objective is to track the performance of the S&P 500 stock index. The Fund uses an indexing investment strategy. All of the Fund’s assets are invested in the stocks that make up the index. It has the same approximate weightings as the index and attempts to mirror the target index.

From the composition of both ETFs, I was able to depict that both are pretty good offerings from Vanguard funds. They both have a large number of holdings, and also they track two indexes that are in favor of investors.

Holdings

The difference between the number of holdings of both VOO and VGT is noticeable. But, it is not a very big difference that if you choose VGT, it will harm your portfolio. The number of holdings is adequate in both the ETFs and can help diversify the portfolio.

VOO has a slightly high number of holdings, 507. On the other hand, VGT offers 341. If we look at it on a large scale, then, yes, VOO has the edge over VGT here. It can help you efficiently diversify your portfolio by investing in well-established companies.

Moreover, coming to the holding percentage of both funds, VGT takes the lead here. With 59.20% of total weightage in the holding make it a strong contender. This means that long-term investment in the VGT could be a good decision instead of VOO.

Allocations

In terms of market value, VOO’s top 10 holdings account for just a fourth of the entire portfolio compared to nearly half of the total assets held by VGT. From this, we can infer that the performance of VGT may be very dependent on the top ten holdings.

Another thing I noticed about VGT is that Amazon, Facebook, and Google are not included in the ETF. Amazon is listed as Internet & Direct Marketing Retail, while Google and Facebook are classified as Interactive Media & Services.

You get diversification across numerous sectors when you invest in VOO, from Information Technology to Healthcare and Real Estate. Whereas, with VGT, you get to invest mainly in the information technology sector. Investing in VGT is equivalent to investing 23.1% of the fund in firms under the Technology Hardware, Storage & Peripheral sector.

VGT vs VOO – Historical Performance

Both VGT and VOO are exchange-traded funds. VGT has a superior 5-year return (27.78% vs 16.47 percent), according to past performance.

Dividend yield

If you mark dividend yield as one of the determinants while choosing ETFs then, VOO is likely to be the one for you. With a 1.34% annual dividend yield, you can earn a good income, compared to the 0.64% of VGT.

Risk

This has a simple answer that requires no guesswork or extensive research. The risk factor is clearly higher in the case of choosing VGT due to the higher return ratio. But, if you are confused between VGT vs VOO for investing in a long-term plan, selecting either of them will serve your purpose.

Volatility

VGT is currently displaying a 37.05% volatility, more significant than the VOO’s 23.53%. Therefore, my investment advice is to be more careful while investing in VGT.

Returns

VOO gives you a total return of 15.13% per year, whereas VGT offers 20.94% each year. Each year, this gap widens by 5.81 percent!

Let’s look at a sample to see what I’m talking about returns. Assume you invested $10,000 in VGT, which tracks Tech Stocks, and $10,000 in VOO, which tracks the S&P 500 a decade ago. You would have ended up with $86,276 with VGT and $49,351 with VOO.

Therefore, VGT would have benefited you with a profit of $36,925 more than VOO. That’s a noticeable difference!

Also, keep in mind that technology has been steadily increasing in the last ten years, which explains the difference. Moreover, there is a higher risk in investing in VGT as well since it invests in firms from the same sector.

Tax Efficiency

The tax efficiency of both the exchange-traded funds will depend on your overall financial structure and income bracket. However, the Vanguard ETFs are known for their tax efficiency compared to mutual funds.

VGT vs VOO – Environment, Social and Governance Ratings (ESG)

The MSCI ESG Fund Rating is required since it assesses the flexibility of portfolios to return to long-term investments. It includes long-term risks and opportunities that are the consequence of environmental, social, and governance factors.

Before investing in any funds, I like to learn about the company’s environmental, social, and governance (ESG) history. It’s for our benefit, contributing to increased transparency on the long-term dangers involved.

Here are the ESG ratings of VOO and VGT –

The ESG ratings clearly depict that VGT is far more superior to VOO in terms of the ratings. Now it all comes to which one you should choose?

VGT or VOO – How to decide?

Well, there are many technology ETFs, and choosing one can be difficult for you. But if you are stuck between VGT vs VOO, my answer would be to go with VGT. VGT (Vanguard Information Technology ETF) is the best choice based on past results, with a portfolio growth of nearly double that of VOO.

In addition, it outperforms in terms of annual returns. There have been no negative yearly returns for the past ten years. I’m leaning toward VGT because of the performance. Also, I think that the technology sector will outperform other industries in the future.

If you want to diversify your portfolio, VOO is the way to go. You can’t go wrong with a 15.13 percent annualized return over ten years, either.

But always remember that “past performance data is not an indicator of future returns” and that “volatility is a fact of life.”

Conclusion

All in all, if you are curious about the best ETFs to buy right now, my opinion would be to go with Vanguard Information Technology ETF. This high-performing tech ETF has outranked all the others since its release. It’s cheap, efficient, and tracks its stated index really well!

Moreover, most Vanguard funds are indeed known for being technologically advanced yet cost-efficient. So, whichever you choose, the journey is going to be smooth.

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