How can you invest in artificial intelligence (AI) without picking specific AI stocks? It's simple: Buy an exchange-traded fund (ETF) with a heavy concentration in AI stocks.
Vanguard has long been a favorite among investors for its low-cost funds. The investment firm does not have any purely AI-focused ETFs. However, here are three fantastic Vanguard ETFs to buy that are loaded with top AI stocks.
1. Vanguard Information Technology Index Fund ETF
Arguably, Vanguard has the closest thing to a pure play AI fund. Vanguard Information Technology Index Fund ETF (NYSEMKT: VGT ). As its name suggests, this ETF focuses on information technology (IT) stocks.
Vanguard Information Technology Index Fund ETF currently owns 321 US tech stocks. Five AI stocks make up about 53% of the fund's portfolio: Microsoft, apple, Nvidia, BroadcomAnd Advanced Micro Devices.
You won't have to pay through the nose for this ETF. Its annual expense ratio is just 0.1%, compared with 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 delivered an average annual return of 23.5%. Since its inception in January 2004, the ETF has averaged an annual return of 13.25%.
The main downside to buying this ETF is its value. The average stock in the fund has a trailing price-to-earnings (P/E) ratio of 35.6. There is some good news, though. The stocks owned by this Vanguard ETF have grown by an average of 23% in annualized income over the past five years. Many of these should have strong upside prospects, making ETF valuations less dire.
2. Vanguard Mega Cap Growth Index Fund ETF
Market caps of top AI stocks have risen. it means. Vanguard Mega Cap Growth Index Fund ETF (NYSEMKT: MGK ) Owns many AI leaders with its focus on America's largest growth stocks.
Vanguard Mega Cap Growth Index Fund ETF owns 79 stocks with an average market cap of $1.8 trillion. Eight of its top 10 holdings are AI stocks: Microsoft, Apple, Nvidia, Amazon, Meta platforms, the alphabet Class A, Alphabetical Class C, and Tesla. These stocks make up about 60% of the ETF's portfolio.
This Vanguard ETF has an annual expense ratio of 0.07%, which is lower than the 0.95% average for 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, though, the Vanguard MegaCap Growth Index Fund ETF is a high-value play. The average P/E ratio of the megacap stocks in its portfolio is 38.
3. Vanguard S&P 500 Growth Index Fund ETF
Investors seeking exposure to AI may also like Vanguard S&P 500 Growth Index Fund ETF (NYSE: VOOG). This ETF owns growth stocks that are part of S&P 500 Index
This Vanguard ETF owns 229 stocks with an average 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 make up 57.5% of the fund's total portfolio.
The Vanguard S&P 500 Growth Index Fund ETF has an annual expense ratio of 0.1%, well below the 0.95% average expense ratio of similar funds. The ETF has delivered an average annualized 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 in 2024.
You can probably guess the main flaw in this Vanguard ETF. It's like the other two ETFs on our list — valuation. However, Vanguard S&P 500 Growth Index Fund ETF is slightly cheaper with a P/E ratio of 33.9. If the AI boom continues, this ETF should continue its bullish momentum.
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3 Brilliant Vanguard ETFs to Buy That Are Loaded with Top Artificial Intelligence (AI) Stocks was originally published by The Motley Fool.