VGT vs QQQ – Which is a better ETF?

An Overview Of VGT vs QQQ

VGTQQQ
Benchmark IndexMSCI US Investable Market
IT 25/50 Index
Nasdaq-100 Index
StylePassivePassive
Inception Date26 Jan 200410 Mar 1999
Expense Ratio0.10%0.20%
Number of Stocks345102
% of 10 largest holdings56%52.2%
Dividend Yield0.81%0.48%
AUM$41.6 B$158.75 B
as of 5/6/2020
Source: advisors.vanguard.com and www.invesco.com

VGT has a expense ratio of 0.10% compared to QQQ’s 0.20%. This means that for every $10,000 you invest, you are only paying $10 and $20 respectively each year in management expenses.

VGT has a slightly higher dividend yield at 0.81% vs QQQ’s 0.48%. Personally, I wouldn’t buy these ETFs for the yield as these are pretty low yield rates. These ETFs are more suited for growth play rather than dividend play.

VGT (Information Technology ETF) is made up of companies that are in the technology software and service, technology hardware and equipment and semiconductor and semiconductor equipment manufacturers sectors. They include companies that are between small to large market capitalization

Invesco QQQ includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. This means that only top 100 largest market capitalization companies are included in the ETF.

VGT is a pure US play, as it invests only in US companies. QQQ, on the other hand, has 3%~ of the total fund allocated to international companies.

Source: advisors. www.invesco.com

Fund Composite VGT Vs QQQ

Top 10 Fund Holdings

VGTQQQ
Apple Inc. (AAPL)
19.68%
Apple Inc (AAPL)
11.1%
Microsoft Corp. (MSFT)
16.04%
Microsoft Corp (MSFT)
9.66%
Visa Inc. (V)
3.17%
Amazon.com Inc (AMZN)
8.62%
NVIDIA Corp. (NVDA)
3.13%
Tesla Inc (TSLA)
4.14%
Mastercard Inc. (MA)
3.00%
Alphabet Inc (GOOG)
3.99%
PayPal Holdings Inc. (PYPL)
2.56%
Facebook Inc (FB)
3.96%
Intel Corp. (INTC)
2.48%
Alphabet Inc (GOOGL)
3.59%
Adobe Inc. (ADBE)
2.16%
NVIDIA Corp (NVDA)
2.8%
Cisco Systems Inc.
/Delaware (CSCO)
2.07%
PayPal Holdings Inc (PYPL)
2.3%
salesforce.com Inc. (CRM)
1.83%
Comcast Corp (CMCSA)
2.04%
56% of total asset52.2% of total asset
as of 5/6/2020
Source: advisors.vanguard.com and www.invesco.com

The top 10 holdings of both funds makes up more than half of the total asset.

With VGT, the top 2 holdings makes up 35% of the fund! Which means if AAPL or MSFT has a poor performance, then it will affect VGT greatly. This is a concentration risk to note when you are buying into VGT.

QQQ does slightly better in this aspect that top 3 holdings makes up almost 30% of the fund.

Another thing that I noticed with VGT is that companies such as Amazon, Facebook and Google are not included in the ETF. Amazon is classified as Internet & Direct Marketing Retail and Google and Facebook are under Interactive Media & Services. This means they do not fall under any the sub categories in VGT as seen below.

Source: advisors.vanguard.com

Overlapping Counters

There are a total of 38 overlapping counters between VGT and QQQ.

Performance Of VGT Vs QQQ

Portfolio Growth

Using the Portfolio Visualizer to back test these 2 ETFs, we can then compare the portfolio growth between Feb 2004 – Apr 2021. The time period was constrained by the available data for Vanguard Information Technology ETF (VGT).

This is what you would have ended up with in Apr 2021, if you have invested $10,000 at the beginning of 2004.

VGT (Vanguard Information Technology ETF): $92,470
QQQ (Invesco QQQ): $96,449

These 2 ETFs have similar growth based on the chart above, with QQQ performing slightly better (4.3%).

Annual Returns

The worst negative return happened in 2008, with VGT losing -42.81% vs QQQ’s -41.73%.

Annualized Returns

1 Year3 Year5 Year10 Year
VGT70.38%29.41%28.21%20.15%
QQQ54.90%29.04%27.20%20.28%
as of 5/6/2020
Source: advisors.vanguard.com and www.invesco.com

The 10 years annualized return for both funds sits at ~20%. These are very good returns for funds that are passively managed.

Conclusion

Both funds perform rather similar. However, I’m leaning towards QQQ on this.

First of all, even though VGT consist of 345 companies, the top 2 holdings makes up ~35% of the total asset for VUG. This is a rather huge concentration risk.

Secondly, the fund omitted other major tech companies like Google and Amazon. Although, this didn’t impact much on the performance when compared to QQQ.

That said, both funds provided very high 10 years annualized returns. So you can’t go wrong with either ones.

As always, remember that Past Performance is No Guarantee of Future Results.