ETFs
3 Gorgeous Vanguard ETFs to Buy That Are Full of the Best Artificial Intelligence (AI) Stocks
How to invest in artificial intelligence (AI) without having to select specific AI stocks? It’s simple: buy an exchange-traded fund (ETF) with a high concentration in AI stocks.
Vanguard has long been a favorite among investors because of its low-cost funds. The investment firm doesn’t offer any ETFs focused purely on AI. However, here are three great Vanguard ETFs to buy that are loaded with the best AI stocks.
1. Vanguard Information Technology Index Fund ETF
Arguably the closest thing to a pure AI fund at Vanguard is its Vanguard Information Technology Index Fund ETF (NYSEMKT:VGT). As its name suggests, this ETF focuses on stocks in the information technology (IT) sector.
The Vanguard Information Technology Index Fund ETF currently owns 321 U.S. technology stocks. Five AI stocks represent nearly 53% of the fund’s portfolio: Microsoft, Apple, Nvidia, BroadcomAnd Advanced microsystems.
You won’t have to pay much for this ETF. It is annual expense ratio is just 0.1%, compared to an average expense ratio of 0.97% for similar funds not offered by Vanguard.
Over the past five years, the Vanguard Information Technology Index Fund ETF has generated an average annual return of 23.5%. Since its inception in January 2004, the ETF’s average annual return has been 13.25%.
The main disadvantage of purchasing this ETF is its valuation. The average share of the fund has a price price/earnings ratio (P/E) of 35.6. There is some good news, though. The stocks held by this Vanguard ETF have generated average annual earnings growth of 23% over the past five years. Many of them should have solid growth prospects going forward, making the ETF’s valuation less scary.
2. Vanguard Mega Cap Growth Index Fund
The market capitalizations of major AI stocks have soared. It means that Vanguard Mega Cap Growth Index Fund ETF (NYSEMKT:MGK) owns many AI leaders and focuses on the largest U.S. growth stocks.
The Vanguard Mega Cap Growth Index Fund ETF has 79 stocks with a median market cap of $1.8 trillion. Eight of its top 10 holdings are AI stocks: Microsoft, Apple, Nvidia, Amazon, Meta-platforms, Alphabet Class A, alphabetical class C and You’re hereThese stocks represent nearly 60% of the ETF’s portfolio.
This Vanguard ETF also has a low annual expense ratio of 0.07%, well below the 0.95% average of similar funds. It has generated an average annual return of 20.03% over the past five years and 12.73% since the fund’s inception in December 2007.
Like the Vanguard Information Technology Index Fund ETF, the Vanguard Mega Cap Growth Index Fund ETF has a high valuation. The average price-to-earnings ratio of the mega-cap stocks in its portfolio is 38.
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3. Vanguard S&P 500 Growth Index ETF
Investors looking to gain exposure to AI might also appreciate Vanguard S&P 500 Growth Index Fund (NYSEMKT: VOOG). This ETF holds growth stocks that are part of the S&P 500 hint.
This Vanguard ETF holds 229 stocks with a median market cap of $1.2 trillion. Nine of its top 10 holdings are AI stocks: Microsoft, Apple, Nvidia, Amazon, Meta, Alphabet Class A, Alphabet Class C, Broadcom and Tesla. These nine stocks represent 57.5% of the fund’s total portfolio.
The annual expense ratio of the Vanguard S&P 500 Growth Index Fund ETF is 0.1%, much lower than the average expense ratio of 0.95% of similar funds. The ETF has generated an average annual return of 16.59% over the past five years and 15.72% since its inception in September 2010. It is also the best performing ETF in the Vanguard family so far. ‘now in 2024.
You can probably guess the main drawback of this Vanguard ETF. It’s the same as for the other two ETFs on our list: valuation. However, the Vanguard S&P 500 Growth Index Fund ETF is a bit cheaper with a price-to-earnings ratio of 33.9. If the AI boom continues, this ETF should maintain its meteoric momentum.
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3 Gorgeous Vanguard ETFs to Buy That Are Full of the Best Artificial Intelligence (AI) Stocks was originally published by The Motley Fool