Key Points
The Invesco QQQ ETF invests in the 100 largest non-financial companies traded on the Nasdaq exchange.
It just happens to have a high tech concentration because that's where the biggest companies have chosen to list their stocks.
If you want tech exposure in your portfolio, choose the fund that's actually focused on tech.
The Invesco QQQ ETF (NASDAQ: QQQ) is one of the most popular ways to invest in technology stocks, but there's a problem with that.
It's not actually a technology ETF.
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That's the one thing that matters when comparing it with the Vanguard Information Technology ETF (NYSEMKT: VGT). For investors specifically targeting long-term technology growth, I believe VGT is the better choice.
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Why VGT has the advantage
To be clear, the Invesco QQQ ETF is mostly a tech fund. But that's almost by coincidence. Specifically, the fund's objective is to track the Nasdaq-100, which comprises the 100 largest non-financial stocks traded on the Nasdaq. That's it. There's no specific targeting of size, sector, style, or anything else.
It looks like a tech fund because most of the major tech companies have chosen to list their stocks on that exchange. Currently, about 68% of the index is dedicated to tech. The other one-third includes consumer discretionary, telecom, healthcare, industrials, and minor additional allocations elsewhere. It includes Walmart, Costco Wholesale, Amgen, and PepsiCo, some very non-tech holdings.
The Vanguard Information Technology ETF is a pure tech fund. It tracks an index that holds more than 300 positions entirely devoted to tech. Plus, in true Vanguard-ian fashion, its 0.09% expense ratio is one of the lowest in this space and half that of the Invesco QQQ ETF.
If you want tech exposure in your portfolio, choose the tech ETF, not the fund that is mostly a tech ETF.
David Dierking has positions in Vanguard Information Technology ETF. The Motley Fool has positions in and recommends Amgen, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.