Technology stocks and funds have soared in recent years as investors rushed to get in on the next big revolution: artificial intelligence (AI). Like the Internet or the printing press, AI can go down in the history books as one of the biggest transformations in the world of technology. And companies and investors that get involved early can score a big win.
This idea has sparked investor interest in technology stocks and funds, driving them to highs. And one of these winning assets has been Cutting Edge Information Technology ETF (NYSEMKT:VGT). Over the past three calendar years, this exchange-traded fund has soared 136%. Since the beginning of this year, it has fallen about 6%, but at around $700 per share, it is still close to its peak price of over $750.
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In a couple of weeks, the fund managers will do something that will dramatically change the price of this hot ETF. With this in mind, should you buy shares before the key date of April 17? Let’s find out.
So what exactly will happen at the end of this month? Vanguard has decided to launch stock splits for several of its funds, and one of them is the Vanguard Information Technology ETF. Vanguard says the reason for this is to “broaden availability to investors while keeping share prices within accessible trading ranges.”
Before we get into the details and answer our question, here’s a quick refresher on how stock splits work. A stock or stock split offers current holders of a particular asset additional shares; This does not change the total value of your investment, but rather reduces the value of each share.
The split ratio determines how many shares you will own and their value after the deal. So, for example, in a 10-for-1 split, if you own 1 share before the trade, you will receive nine more shares as part of the deal. This would reduce a stock or fund from $1,000 to $100 per share.
The Vanguard IT fund will be split 8 for 1, meaning holders will receive seven additional shares for each one they already own. And at the ETF’s current price, that would lift each share to just over $85.
As mentioned, companies or in this case funds do this to make an asset that has risen sharply an easier purchase for a broader range of investors. Often, when a stock or fund approaches the $1,000 level, the companies themselves or, in the case of a fund, the fund management companies decide to do a split; The $1,000 price may represent a psychological barrier for some investors as they might consider the asset expensive even if the valuation is reasonable. Therefore, this could be a smart move to keep investors interested in a particular stock or fund.