Tech ETFs: Key Insights for Investors on XLK and FTEC.

Key Points

• XLK is far larger and more liquid than FTEC, though both charge identical fees and track the U.S. technology sector

• XLK’s top holdings are more concentrated, while FTEC holds nearly 300 names for broader diversification

• Recent returns and dividend yield have slightly favored XLK, but risk and sector exposure remain similar

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The State Street Technology Select Sector SPDR ETF (XLK) (NYSEMKT:XLK) and the Fidelity MSCI Information Technology Index ETF (FTEC) (NYSEMKT:FTEC) are both technology-focused ETFs with many similarities and some key differences. XLK is much larger and more liquid than FTEC, though both funds charge the same low fee and target the U.S. technology sector.

Both FTEC and XLK offer low-cost exposure to large-cap U.S. technology stocks, but they differ in portfolio breadth, trading volume, and concentration of holdings. This comparison highlights key factors to consider if you are weighing a technology-focused exchange-traded fund (ETF).

Snapshot (Cost & Size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

Both funds are equally affordable with a 0.08% expense ratio, but XLK has delivered a marginally higher trailing one-year return and a slightly larger dividend yield. The cost difference is negligible, making yield and liquidity the primary differentiators for fee-conscious investors.

Performance & Risk Comparison

What’s Inside

XLK focuses on the S&P 500’s technology sector, holding 70 companies with a heavy tilt toward the largest names. Its three biggest positions—Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT)—account for over a third of assets. XLK is one of the oldest sector ETFs, with a 27-year track record and $92.8 billion in assets under management (AUM), making it one of the most liquid tech funds available.

FTEC covers a broader slice of U.S. tech with 294 holdings, including some smaller companies outside the S&P 500. Its top three—Nvidia, Microsoft, and Apple—also dominate, with Nvidia having a higher weight but Microsoft and Apple having lower individual weights. Sector exposure is nearly identical, though FTEC may offer extra diversification for those seeking a more comprehensive technology portfolio.

What This Means For Investors

XLK and FTEC are highly similar ETFs that both focus on the technology sector. Both ETFs rely on big tech stalwarts like Nvidia, Microsoft, and Apple. Due to this, they boast nearly identical performance and risk metrics. What’s more, they both have an expense ratio of 0.08%, meaning that there is no difference between the two when it comes to costs. However, there are a few key differences that are worth exploring.

For example, FTEC offers a wider portfolio breadth, with nearly 300 holdings. That’s more than 4x as many as XLK, which has only 70 stock holdings. Granted, many of those 300 holdings in FTEC are very small on a percentage basis, but those additional positions do provide some diversification.

Next, investors may want to consider the differences in AUM. XLK has a much higher AUM of $95.6 billion, as compared to $16.6 billion for FTEC. While both figures are more than sufficient for proper liquidity, XLK’s superior figure gives it a slight edge for investors concerned with this metric.

In summary, XLK and FTEC are very similar ETFs, offering identical, or nearly identical, performance histories, expense ratios, and dividend yields. What sets them apart are AUM and the number of holdings. However, for tech-oriented investors, either fund provides a solid way to benefit from the growth of the tech industry over the long term.

Glossary

ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Dividend yield: Annual dividends paid by a fund or stock, expressed as a percentage of its current price.
Liquidity: How easily an asset can be bought or sold in the market without affecting its price.
AUM (Assets Under Management): The total market value of assets that a fund manages on behalf of investors.
Beta: A measure of an investment’s volatility compared to the overall market, typically the S&P 500.
Max drawdown: The largest percentage drop from a fund’s peak value to its lowest point over a specific period.
Sector exposure: The proportion of a fund’s assets invested in a particular industry or sector.
Portfolio breadth: The number of different holdings within a fund, indicating how diversified it is.
Concentration of holdings: The extent to which a fund’s assets are invested in its largest positions.
Total return: The investment’s price change plus all dividends and distributions, assuming those payouts are reinvested.
Trailing one-year return: The total return of an investment over the past 12 months.

For more guidance on ETF investing, check out the full guide at this link.