Exchange-traded funds (ETFs) can offer you an easy way to gain exposure to a lot of stocks through just a single investment. But that doesn't mean you have to sacrifice good returns in the process.
Growth-focused ETFs can generate strong, market-beating returns for investors while also providing excellent diversification. One ETF that has been a particularly good investment over the past decade is the Fidelity MSCI Information Technology Index (FTEC -0.09%).
Low fees but high returns
The Fidelity MSCI Information Technology Index ETF comes with a fairly light expense ratio of just 0.08%. That's important as higher fees can chip away at your returns over time. But that's not the case with this Fidelity fund, making it an attractive option for long-term investors.
In the past 10 years, the fund has risen in value by around 440%, dwarfing the S&P 500 and its 170% gain during that stretch. In fact, that's an even better return than the popular Invesco QQQ Trust, which invests in the top 100 non-financial companies on the Nasdaq. When including dividends, the total returns come out to 505% for the Fidelity fund, 435% for Invesco, and 225% for the broad market.
If you had invested $10,000 into the Fidelity fund a decade ago, it would be worth more than $58,000 now with dividends reinvested.
Why has the Fidelity tech-focused fund done so well?
The top three stocks in the Fidelity and Invesco funds are the same: Microsoft, Apple, and Nvidia. But what's different is how much each fund allocates to those stocks.
| Stock | FTEC Allocation | QQQ Allocation |
|---|---|---|
| Microsoft | 17.8% | 8.8% |
| Apple | 14.7% | 7.6% |
| Nvidia | 11.9% | 6.2% |
Data source: Invesco, Fidelity.
The Fidelity fund has allocated more than 44% to those three stocks versus less than 23% for the Invesco fund. Despite having more than 300 holdings, Fidelity's fund is less diverse among its top holdings than the Invesco QQQ Trust is.
When a fund's top stocks are doing well and it has significant exposure to them, that can lead to some incredible returns for investors. The risk, however, is that with valuations being high, the Fidelity fund may be vulnerable to a steeper correction if those heavily-weighted stocks falter.
Is the Fidelity MSCI Information Technology Index ETF still a good buy?
If you're bullish on Microsoft, Apple, and Nvidia more so than other tech stocks, then investing in the Fidelity fund can still be a great option right now. If your focus is on the long run, however, a sounder strategy may be for less concentration in just three stocks, which is why the Invesco fund and other options may be more appropriate for investors from here on out.
Both funds, however, can still generate excellent investments, given the opportunities in artificial intelligence and for technological advancements to propel leading companies to new heights. The key takeaway, however, is that just because you invest in ETFs doesn't mean you can't target high-growth areas and earn great returns along the way.
