The S&P 500 and Nasdaq-100 indexes are heavily concentrated in the same major tech stocks, which means buying different index funds might still leave investors with a tech-dominated portfolio. This overlap is particularly evident when comparing popular exchange-traded funds (ETFs) like the Vanguard S&P 500 ETF (VOO) and the Invesco Nasdaq 100 ETF (QQQM). Both funds hold nearly identical top 10 stock holdings, including Nvidia, Apple, Microsoft, Alphabet, Amazon, Broadcom, Meta Platforms, Micron Technology, Tesla, and JPMorgan Chase.
For investors looking to diversify, dividend ETFs such as the Schwab U.S. Dividend Equity ETF (SCHD) and the iShares Core Dividend Growth ETF (DGRO) offer a different mix of stocks. These funds include energy, healthcare, and consumer staples companies, providing exposure to sectors that may be less affected by a potential tech sell-off. Over the past five years, SCHD and DGRO have underperformed compared to tech-heavy ETFs, but they could become more attractive if the market shifts away from tech stocks.
The Vanguard Information Technology ETF (VGT) stands out as it focuses on traditional tech companies like Nvidia, Apple, and Microsoft, excluding stocks like Alphabet, Amazon, Meta, and Tesla. Despite its more concentrated tech focus, VGT has outperformed other funds in the past five years. Investors worried about the concentration of tech stocks in their portfolios might consider reallocating some assets to dividend-focused ETFs to reduce risk.
If you're considering the Vanguard Morningstar Total Stock Market ETF (VTI), note that it has similar top holdings to VOO, with only minor differences. Investors should weigh the benefits of diversification against the potential for continued strong performance from tech stocks, especially as the AI boom continues to drive up the market caps of major tech companies.