Vanguard's Tech ETF Is About 10% Below Its Record. History Says What Usually Comes Next.
Nineteen times since 2004, this fund has closed 10% below a peak. What did the next year usually look like?
The Vanguard Information Technology ETF (VGT) recently dropped to around $117, almost 10% below its record high. The fund has experienced this decline before, falling at least 10% below a previous record 19 times since 2004. In 14 of those instances, the fund recovered and finished the year higher, with an average gain of about 21%.
However, such drops don't necessarily mean the fund will struggle; in fact, 82% of the time, the fund gained over the next 12 months. The last two drops are too recent to assess their full impact. The fund's concentration in a few major companies, like Nvidia and Apple, means large fluctuations in their performance can significantly impact the entire fund.
While this 10% drop may not be a clear sign the fund is a bad investment, it's not a bargain either. The Federal Reserve's interest rate hikes may worsen the outlook, but the odds of a rebound remain relatively high.
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