1 Spectacular Vanguard ETF to Purchase With $550 In the course of the Tech Bear Market

The S&P 500 (SNPINDEX: ^GSPC) is made up of 500 corporations from 11 totally different financial sectors. The knowledge expertise sector is the most important by a large margin, representing 29.9% of your entire worth of the index.

The S&P 500 not too long ago suffered a peak-to-trough decline of 19%, falling simply shy of the bear-market threshold of 20%. Nevertheless, the S&P 500 Data Expertise index plunged by as a lot as 26%, inserting it firmly in bear territory. Apple, Microsoft, and Nvidia are simply a few of the heavyweights within the info expertise sector, so it is a good proxy for the efficiency of a few of America’s most dear corporations.

The Vanguard Data Expertise ETF (VGT 0.72%) completely invests in shares from the data expertise sector (together with these inside and outdoors the S&P 500), and it has outperformed the S&P 500 yearly, on common because it was established in 2004. Subsequently, buyers with a spare $550 would possibly wish to take the chance to purchase one share on this fund whereas it is buying and selling at a reduction through the tech bear market.

Picture supply: Getty Photos.

A possible tariff safe-haven

On April 2, President Trump introduced plans to impose a sweeping 10% tariff on all bodily merchandise imported into America, along with a sequence of a lot increased “reciprocal” tariffs on items from particular international locations. The reciprocal tariffs have since been paused for 90 days pending negotiations between the U.S. and its buying and selling companions, apart from these positioned on China, which stay energetic.

Sweeping tariffs have instantly elevated the price of dwelling for shoppers, which might dent America’s financial progress. Plus, some international locations have imposed their very own tariffs in retaliation, which may also harm U.S. exporters. This can be a cocktail for weaker company earnings, which is why the S&P 500 suffered such a pointy decline over the previous couple of weeks.

Nevertheless, most of the services produced by corporations within the info expertise sector aren’t straight affected by the tariffs, which is why I consider the sector’s underperformance relative to the S&P 500 represents a giant alternative for buyers. For instance, semiconductors have been excluded from President Trump’s tariffs from the start, which suggests the industry-leading synthetic intelligence (AI) chips produced by corporations like Nvidia and Broadcom will not be affected.

Furthermore, Microsoft primarily sells digital merchandise just like the Home windows working system and 365 productiveness suite (Phrase, Excel, and PowerPoint), along with cloud companies via its Azure platform. None of these are topic to the tariffs (for now). Additional, final weekend, President Trump introduced that smartphones and computer systems will probably be faraway from the reciprocal tariffs which are nonetheless in place on imports from China. This considerably advantages Apple, which manufactures round 90% of its iPhones in that nation.

Beneath is a listing of different holdings within the Vanguard Data Expertise ETF that primarily promote software program, cloud companies, digital merchandise, or exempted merchandise like semiconductors:

Knowledge supply: Vanguard. Portfolio weightings are correct as of Feb. 28, 2025, and are topic to vary.

The Vanguard ETF holds 314 totally different shares. Nevertheless, the above 10 shares, mixed with Apple, Microsoft, Nvidia, and Broadcom, account for a whopping 61.7% of your entire worth of its portfolio.

With all of that mentioned, although the above corporations aren’t straight impacted by tariffs, they’re prone to endure oblique penalties from President Trump’s commerce insurance policies. If the U.S. financial system does decelerate, they’ll expertise weaker demand for his or her services. This impact could possibly be particularly pronounced for the likes of Nvidia, Broadcom, and AMD, that are counting on a whole bunch of billions of {dollars} in AI knowledge heart infrastructure spending from only a handful of shoppers annually to gasoline their progress.

A few of that potential threat is already priced in. Nvidia inventory, as an illustration, is down by 25% from its report excessive, wiping a staggering $900 billion off the corporate’s market capitalization. That reduces the potential draw back threat for buyers who swoop in and purchase the Vanguard ETF right this moment.

An excellent monitor report in opposition to the S&P 500

The Vanguard Data Expertise ETF was not too long ago down by as a lot as 27% from its report excessive, so it is closely underperforming the S&P 500 for the time being. Nevertheless, the image appears to be like very totally different after we zoom out and study its long-term efficiency.

The Vanguard ETF has delivered a compound annual return of 12.8% because it was established in 2004, comfortably beating the common annual achieve of 9.6% within the S&P 500 over the identical interval. That 3.2 share level distinction would not sound like a lot at face worth, however it could have made a world of distinction in greenback phrases because of the magic of compounding:

Calculations by writer.

In my opinion, even when the financial system slows on account of international commerce tensions, buyers are prone to proceed shopping for high quality shares like Apple, Microsoft, and Nvidia. These corporations have extremely sturdy stability sheets with loads of money available, along with dependable earnings and management positions of their respective industries. They may nonetheless be the most effective homes in a nasty neighborhood, so to talk, as the remainder of the market faces the identical financial challenges.

Plus, PwC predicts the AI revolution will add a whopping $15.7 trillion to the worldwide financial system by 2030, and far of that worth will probably be created by the businesses within the info expertise sector. Consequently, the Vanguard Data Expertise ETF is perhaps an amazing purchase through the tech bear market.