How to Capture the Bellwethers of Tech
Comparing Apples to Oranges…or in This Case Apple to Oil
It’s no secret that the market has been turbulent lately. It’s been turbulent for over a year, let’s be honest. Between rising rates and inflation, many tech funds have taken a beating (have you seen META down over 70%?). However, even with all of this turmoil, it’s important not to overlook the power of tech and how valued it is in comparison to other essential industries, especially when interest rates and inflation start to subside. Just as volatile as tech can be when it declines in value, it can equally climb nearly just as quickly. We will take a look at a couple of examples to showcase the value of tech companies in addition to an index fund that you can invest in to capture some of the strongest and versatile tech businesses.
Market Cap of Tech Companies
The first example has to do with market cap. Market cap is essentially how much a company is worth. When you compare the market caps of Google ($1.2 trillion) and Apple ($2.2 trillion) to Exxon Mobile ($455 billion), it’s clear that society values tech companies much more highly than even the most essential of industries. In fact, the combined market value of Google and Apple is nearly $3.5 trillion dollars! If you think about that value in terms of GDP (gross domestic product), that is larger than the economy of France ($2.9 trillion) or even India ($3.1 trillion). And to think, that is just the value of two tech companies.
The second example has to do with society’s reliance on these tech companies. While we certainly rely on oil to power our homes, vehicles, products, literally just about everything, the value of these oil companies market caps compared to some of the tech companies shows that society and investors currently place a higher value on tech companies than even oil companies that power the very things the most businesses rely on. However, there are many things that we rely on Google and Apple for as well. For instance, we use them for navigation, communication, business software, entertainment, shopping, to name a few. They have become so essential to our everyday lives that it’s hard to imagine life without them.
How We Got Here and Where We Are Going
The surge in technological advancements over recent years has led to massive changes in how our world functions. We now live in a global economy that is interconnected like never before, which can be attributed to the advancement of tech and their companies. We don’t think twice about it anymore, but you can see what is happening on the other side of the world instantly with the devices we have at our fingertips. Even as I am writing this, I tap on a few keys and they appear on my screen. Then, I will upload this onto my website and send emails out and share it on social media which can also be seen by anyone in the world. Wait, what? Yeah, don’t overlook the everyday wonders. It’s hard to imagine a world without smartphones, laptops, and the internet (although sometimes I wonder what it would be like to live without them, since I only got a glimpse of it being a millennial).
The rapid pace of change can make it difficult to keep up with the latest developments. That’s why it’s important to invest in companies that are at the forefront of this change. VGT (Vanguard Information Technology ETF) is an ideal way to stay diversified in the tech space while capturing potential gains alongside some of the world’s largest tech behemoths.
What is VGT?
As I mentioned briefly above, it’s a technology fund that harnesses the power of hundreds (372 to be exact, as of this writing) of tech companies, which allows you to capture the potential of bellwether companies like Apple, Microsoft, and Google, while also being invested in companies that you may not have even heard of yet.
Here are the top 20 holdings of the fund and their asset allocation within the fund:
- Apple Inc. / 22.61%
- Microsoft Corporation / 16.95%
- NVIDIA Corporation / 3.48%
- Visa Inc. Class A / 3.29%
- Mastercard Incorporated Class A / 2.94%
- Broadcom Inc. / 1.97%
- Cisco Systems, Inc. / 1.94%
- Accenture Plc Class A / 1.86%
- Salesforce, Inc. / 1.67%
- Adobe Incorporated / 1.55%
- Texas Instruments Incorporated / 1.53%
- QUALCOMM Incorporated / 1.36%
- Oracle Corporation / 1.29%
- International Business Machines Corporation / 1.29%
- Intel Corporation / 1.20%
- Intuit Inc. / 1.18%
- Automatic Data Processing, Inc. / 1.05%
- Advanced Micro Devices, Inc. / 1.01%
- PayPal Holdings, Inc. / 0.95%
- ServiceNow, Inc. / 0.88%
As you can probably now see, even of the top 20 companies within the fund, I am sure there are some you have not even heard of. Even with how terribly these companies have been performing for the entirety of 2022, this fund’s average annual return over the past 10 years is 18.44%. Not too bad, is it?
Looking Ahead
The next time you’re feeling bearish about tech stocks or thinking of selling your underperformers, remember the overlooked power of technology. Market capitalization may be down, but the importance of information and technology has only increased in recent years. VGT is a fund that is positioned to capture the continued success in this rapidly changing world of technology, and as mentioned at the beginning, particularly when inflation begins to fall and interest rates are no longer raised. This is evidenced by both the market caps of these tech companies and society’s reliance on them. So next time you’re tempted to sell your tech stocks, remember that they may be down in the short-term, but they are still some of the most valuable companies in the world.
*This is not financial advice. For educational purposes only.