Which Is the Better Tech ETF, Fidelity's FTEC or State Street's XLK?

The State Street Technology Select Sector SPDR ETF (NYSEMKT:XLK) and Fidelity MSCI Information Technology Index ETF (NYSEMKT:FTEC) provide low-cost exposure to American tech, differing primarily in their breadth of holdings and concentration.

Investors looking for heavy exposure to software and semiconductor giants often turn to these two industry titans. While they overlap significantly in their top positions, FTEC tracks a broader index than XLK, which limits its universe to technology companies within the S&P 500.

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

Both funds carry a 0.08% expense ratio, making them highly efficient options for sector exposure.

Growth of $1,000 over 5 years (total return)

The Fidelity MSCI Information Technology Index ETF holds 294 companies, including Nvidia (NASDAQ:NVDA) at 18%, Apple (NASDAQ:AAPL) at 15%, and Microsoft (NASDAQ:MSFT) at 10%. It tracks a broad index and was launched in 2013. Its portfolio contains 98% technology and 1% industrials, and it has paid a trailing-12-month total dividend of $0.95 per share.

The State Street Technology Select Sector SPDR ETF is more concentrated with 73 holdings and was launched in 1998. Its largest positions include Nvidia at 15%, Apple at 12%, and Microsoft at 10%. It maintains a 99% technology allocation with negligible industrial exposure and has a trailing-12-month total dividend of $0.76 per share.

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

The tech sector has been blazing hot in recent years thanks to artificial intelligence. For investors seeking exposure to AI stocks or the technology industry in general, both the State Street Technology Select Sector SPDR ETF (XLK) and Fidelity MSCI Information Technology Index ETF (FTEC) deliver this at the same low expense ratio. Choosing between the two comes down to a few key factors.

XLK has a far larger AUM, giving it excellent liquidity for active traders and institutional investors. It also provides a modestly higher dividend yield. However, its focus on only 73 tech stocks means a decline in one of its top holdings can cause the ETF’s performance to suffer. XLK is for investors who want an efficient way to hold the biggest names in tech.

FTEC’s much larger 294 holdings deliver far better diversification, protecting against a drop in any given stock. It also gives you exposure to smaller companies with the potential for faster growth than the established businesses in the mega-cap bucket. This makes the ETF a more appealing choice for investors who want to buy and hold for the long term, or those seeking broad tech exposure.

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Robert Izquierdo has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

Which Is the Better Tech ETF, Fidelity's FTEC or State Street's XLK? was originally published by The Motley Fool