VGT vs QQQ: Comparing Technology Index ETFs

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Invesco vs Vanguard logos. A decision between VGT vs QQQ comes down to the investors preference for a more concentrated pool of information technology stocks vs broader diversification among technologies.

This article compares VGT vs QQQ — Vanguard’s Information Technology ETF vs the Invesco QQQ Nasdaq 100 ETF.

Both are passively managed index ETFs popular with tech investors looking to achieve above-market returns associated with technology bellwether stocks instead of risk-free high-yield savings.

Index ETFs track market indexes, such as the Dow Jones Industrial Average or the Russell 2000. 

QQQ tracks one of the most widely-watched U.S. stock market indexes: the Nasdaq-100 Index. 

VGT tracks a lesser-known information technology index called the MSCI US Investable Market Information Technology 25/50 Index.

Both funds own shares of many of the largest U.S. technology companies and pay quarterly dividends. 

Passive index ETF managers do not pick stocks. They allocate funds to all stocks in the benchmark index to track its performance. Managers receive a small fee to achieve this outcome.

Since most actively managed mutual funds do not beat their target benchmarks, many fiduciary financial planners recommend index funds and ETFs instead of actively managed funds or individual stocks.

Bottom Line Upfront (BLUF)

Before I get into the details of VGT vs QQQ, it’s essential to keep the following in mind:

  • Both funds are growth and technology-focused and pay low dividends. 
  • VGT has historically outperformed QQQ by a moderate margin but has higher concentration risk and volatility (measured by beta). 
  • QQQ holds only stocks listed on the Nasdaq stock exchange, which tend to be technology stocks (but are not exclusively).
  • VGT holds U.S. small, mid, and large-cap stocks classified in the Information Technology sector by the Global Industry Classification Standard (GICS). It excludes some popular QQQ stocks, such as Alphabet and Tesla.  
  • Both ETFs are available to purchase from any online broker. I recommend M1 Finance, which is best for dividend investing and dividend reinvestment. 

Please note that both ETFs update their prospectuses regularly, and the information in this article will change over time.

The best resource for both funds is the respective company’s websites.

Here are links to the most updated information at Invesco and Vanguard. Consider the information on those pages to be the authoritative data source.

Side-by-Side Comparison

Here’s a side-by-side comparison of both ETFs. Scroll right on mobile.

A few noticeable differences comparing VGT vs QQQ:

  • QQQ is an older fund tracing back to 1999. VGT was started five years later. 
  • VGT is smaller and has more holdings, but it has high concentration risk, with more than 60% of the fund in just 10 stocks. 
  • VGT has outperformed QQQ over three, five, and ten years.  
  • The dividend yields are similar despite VGT having three times as many holdings. 
  • VGT has a lower expense ratio. 

Benchmark Indexes

VGT tracks the MSCI US Investable Market Information Technology 25/50 Index. 

Visit this page for the latest information about the MSCI US Investable Market Information Technology 25/50 Index.

The index is designed to hold large, mid-, and small-cap U.S. equity stocks classified by the Global Industry Classification Standard (GICS) as part of the information technology sector.

VGT holds only information technology stocks, while QQQ holds a wide range of Nasdaq Composite companies. For example, QQQ holds Tesla, but VGT does not because Tesla is not categorized as an information technology company. 

What is the MSCI 25/50 Index?

The MSCI 25/50 index methodology operates under the following constraints: 

  1. No more than 25% of the value of the fund’s assets may be invested in a single issuer.
  2. The sum of the weights of all issuers representing more than 5% of the fund should not exceed 50% of the fund’s total assets.

To accomplish this outcome:

  • The index is rebalanced quarterly at the end of February, May, August and November
  • No single issuer can exceed 25% of the index weight
  • The sum of all the issuers with weights above 5% does not exceed 50% of the index weight

QQQ tracks the Nasdaq 100 Index, a tech-heavy index of the largest U.S. technology stocks.

Visit this page for the latest information about the Nasdaq 100 index.

The Nasdaq-100 Index is a modified market capitalization-weighted index that measures the performance of 100 of the largest Nasdaq-listed non-financial companies. Companies that meet the selection criteria for eligibility.

The Nasdaq rebalances the index quarterly.

VGT vs QQQ Chart — Performance

Here is a daily updated chart of a $10,000 investment performance in both VGT and QQQ over ten years. Scroll right on mobile.

Note that this chart shows the net asset value (NAV) price performance of each ETF after dividend payments. 

Past performance is not indicative of future results. 

Either fund is suitable as a foundational stock ETF in your portfolio. VGT and QQQ are growth ETFs paying smaller dividends than broader market indexes. Some investors may prefer lower yields to reduce taxable income.

See the table above for up-to-date three-, five-, and ten-year average annual performance records.

QQQ vs VGT — Dividend Payout Schedules

Both VGT and QQQ pay quarterly dividends. 

Investors receive quarterly dividend payments in March, June, September, and December.

Top Ten Holdings for VGT and QQQ

Here are the top ten holdings for each index fund. Visit the links at the beginning of the article for the most updated lists. 

VGT

As of 05/02/2024
# Symbol Company Weight
1 MSFT Microsoft Corp. 0.18395
2 AAPL Apple Inc. 0.15447
3 NVDA NVIDIA Corp. 0.11807
4 AVGO Broadcom Inc. 0.04254
5 CRM salesforce.com Inc. 0.02123
6 AMD Advanced Micro Devices Inc. 0.02116
7 ADBE Adobe Inc. 0.01653
8 ACN Accenture plc Class A 0.01577
9 ORCL Oracle Corp. 0.01508
10 CSCO Cisco Systems Inc. 0.0147
WordPress Table

QQQ

As of 05/03/2024
# Symbol Company Weight
1 MSFT Microsoft Corp 0.08478
2 AAPL Apple Inc 0.07708
3 NVDA NVIDIA Corp 0.0633
4 AMZN Amazon.com Inc 0.05327
5 AVGO Broadcom Inc 0.04561
6 META Meta Platforms Inc 0.04413
7 GOOGL Alphabet Inc 0.02811
8 GOOG Alphabet Inc 0.02736
9 TSLA Tesla Inc 0.02589
10 COST Costco Wholesale Corp 0.02428
WordPress Table

 


VGT and QQQ Equivalents

The VGT mutual fund equivalent is VITAX, the Vanguard Information Technology Index Fund Admiral Shares.

The most obvious QQQ equivalent is QQQM.

Invesco created QQQM as a lower-cost alternative to QQQ. Since QQQ is so large, cutting the expense ratio would significantly cut revenue.  

By creating a QQQ alternative with lower fees, they can keep collecting the QQQ fees but build up a more competitive second fund for more cost-conscious investors.

Another QQQ equivalent is the Vanguard Information Technology ETF (VGT), which is not equal, as highlighted in this article.

VGT tracks the MSCI US Investable Market Information Technology Index and holds more than 300 stocks, while QQQ only holds 100 stocks. 

Another ETF similar to VGT is Vanguard’s Growth ETF (VUG).

The VGT Fidelity equivalent is FTEC, the Fidelity MSCI Information Technology Index ETF. The FTEC benchmark index is the same as VGT. 

Customers of online brokers that charge fees for mutual funds should use VGT or QQQ ETFs instead of mutual funds.

Mutual funds trade differently than ETFs, which trade like stocks. 

ETFs are easier to own, and the price changes throughout the day. Mutual funds only trade at the market close. 

Active investors typically use ETFs for trading purposes or to buy and hold indexes when they can’t access index mutual funds.

For example, if you have an investing account with M1 Finance, you’d invest via ETFs instead of mutual funds. If your account is with Vanguard, you may benefit from using the index fund VITAX because it’s slightly easier to reinvest capital gains and dividends. 

Conclusion

Deciding between VGT vs QQQ comes down to preference for information technology stocks (as a business category) in various market capitalizations vs a broader range of technology and other types of businesses that only trade on the Nasdaq. 

Though QQQ is technology-heavy, it also holds consumer and retail stocks. VGT holds only companies categorized as information technology and can hold small, mid-, and large-cap stocks.

QQQ better represents the total U.S. economy, while VGT generally represents U.S. information technology companies, though that includes several of the largest companies. Information technology has a broad reach but excludes many tech and non-tech companies that are prominent in QQQ, like Costco and Tesla. 

VGT has outperformed QQQ. But it has significantly higher concentration risk — 60% of the fund’s holdings are in just 10 stocks, whereas for QQQ, 45% of holdings are in the top 10 stocks. 

VGT has higher volatility due to the concentration risk. Therefore, short-term losses are more likely if faced with market turmoil. Maintain a long-term investment horizon (10+ years) and dollar-cost average — invest fixed amounts regularly — into VGT or QQQ to reduce this risk. 

QQQ has a higher expense ratio than VGT, but the difference has not impacted long-term returns. Those looking for a lower-fee alternative for QQQ should choose QQQM. 

Purchase either ETF at any commission-free online broker. I prefer M1 Finance.

Please reply with your questions regarding VGT vs QQQ in the comments section below. Include any requests you have about adding more detail to this article. 

Additional Resources

Disclosure: The author does not own either fund but may own a position in the top ten holdings of each fund. The opinions expressed are solely those of the authors and do not reflect the views of M1. They are for informational purposes only and are not a recommendation of an investment strategy or to buy or sell any security in any account. They are also not research reports and are not intended to serve as the basis for any investment decision. Prior to making any investment decision, you are encouraged to consult your personal investment, legal, and tax advisors.


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