1 Spectacular Vanguard ETF to Buy With $550 During the Tech Bear Market

The S&P 500 (SNPINDEX: ^GSPC) is made up of 500 companies from 11 different economic sectors. The information technology sector is the largest by a wide margin, representing 29.9% of the entire value of the index.

The S&P 500 recently suffered a peak-to-trough decline of 19%, falling just shy of the bear-market threshold of 20%. However, the S&P 500 Information Technology index plunged by as much as 26%, placing it firmly in bear territory. Apple, Microsoft, and Nvidia are just some of the heavyweights in the information technology sector, so it's a good proxy for the performance of some of America's most valuable companies.

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The Vanguard Information Technology ETF (NYSEMKT: VGT) exclusively invests in stocks from the information technology sector (including those inside and outside the S&P 500), and it has outperformed the S&P 500 every year, on average since it was established in 2004. Therefore, investors with a spare $550 might want to take the opportunity to buy one share in this fund while it's trading at a discount during the tech bear market.

Image source: Getty Images.

A potential tariff safe-haven

On April 2, President Trump announced plans to impose a sweeping 10% tariff on all physical products imported into America, in addition to a series of much higher "reciprocal" tariffs on goods from specific countries. The reciprocal tariffs have since been paused for 90 days pending negotiations between the U.S. and its trading partners, except for those placed on China, which remain active.

Sweeping tariffs have immediately increased the cost of living for consumers, which could dent America's economic growth. Plus, some countries have imposed their own tariffs in retaliation, which will also hurt U.S. exporters. This is a cocktail for weaker corporate earnings, which is why the S&P 500 suffered such a sharp decline over the last few weeks.

However, many of the products and services produced by companies in the information technology sector aren't directly affected by the tariffs, which is why I believe the sector's underperformance relative to the S&P 500 represents a big opportunity for investors. For example, semiconductors have been excluded from President Trump's tariffs from the beginning, which means the industry-leading artificial intelligence (AI) chips produced by companies like Nvidia and Broadcom won't be affected.

Moreover, Microsoft primarily sells digital products like the Windows operating system and 365 productivity suite (Word, Excel, and PowerPoint), in addition to cloud services through its Azure platform. None of those are subject to the tariffs (for now). Further, last weekend, President Trump announced that smartphones and computers will be removed from the reciprocal tariffs that are still in place on imports from China. This significantly benefits Apple, which manufactures around 90% of its iPhones in that country.

Below is a list of other holdings in the Vanguard Information Technology ETF that primarily sell software, cloud services, digital products, or exempted products like semiconductors:

Data source: Vanguard. Portfolio weightings are accurate as of Feb. 28, 2025, and are subject to change.

The Vanguard ETF holds 314 different stocks. However, the above 10 stocks, combined with Apple, Microsoft, Nvidia, and Broadcom, account for a whopping 61.7% of the entire value of its portfolio.

With all of that said, even though the above companies aren't directly impacted by tariffs, they are likely to suffer indirect consequences from President Trump's trade policies. If the U.S. economy does slow down, they will experience weaker demand for their products and services. This effect could be especially pronounced for the likes of Nvidia, Broadcom, and AMD, which are relying on hundreds of billions of dollars in AI data center infrastructure spending from just a handful of customers each year to fuel their growth.

Some of that potential risk is already priced in. Nvidia stock, for instance, is down by 25% from its record high, wiping a staggering $900 billion off the company's market capitalization. That reduces the potential downside risk for investors who swoop in and buy the Vanguard ETF today.

A brilliant track record against the S&P 500

The Vanguard Information Technology ETF was recently down by as much as 27% from its record high, so it's heavily underperforming the S&P 500 at the moment. However, the picture looks very different when we zoom out and examine its long-term performance.

The Vanguard ETF has delivered a compound annual return of 12.8% since it was established in 2004, comfortably beating the average annual gain of 9.6% in the S&P 500 over the same period. That 3.2 percentage point difference doesn't sound like much at face value, but it would have made a world of difference in dollar terms thanks to the magic of compounding:

Calculations by author.

In my view, even if the economy slows due to global trade tensions, investors are likely to continue buying quality stocks like Apple, Microsoft, and Nvidia. These companies have incredibly strong balance sheets with plenty of cash on hand, in addition to reliable earnings and leadership positions in their respective industries. They could still be the best houses in a bad neighborhood, so to speak, as the rest of the market faces the same economic challenges.

Plus, PwC predicts the AI revolution will add a whopping $15.7 trillion to the global economy by 2030, and much of that value will be created by the companies in the information technology sector. As a result, the Vanguard Information Technology ETF might be a great buy during the tech bear market.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Accenture Plc, Adobe, Advanced Micro Devices, Apple, CrowdStrike, Microsoft, Nvidia, Oracle, Palantir Technologies, Qualcomm, and Salesforce. The Motley Fool recommends Broadcom and Palo Alto Networks and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.