Comparing iShares U.S. Technology ETF (IYW 5.92%) and Vanguard Information Technology ETF (VGT 6.14%) reveals that while both offer aggressive growth through the tech sector, VGT provides lower costs and broader diversification.
Both funds target the high-growth domestic technology market, but they follow different indexing philosophies. Investors frequently use these instruments to gain concentrated exposure to the silicon and software giants that drive modern markets, though their underlying indexes treat specific megacap stocks differently. While IYW includes certain internet-based communication giants, VGT sticks to a more traditional information technology definition.
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.
Cost-conscious investors may find the Vanguard fund more affordable given its 0.09% expense ratio, which is nearly a quarter of the fee charged by the iShares fund. Additionally, VGT offers a higher trailing payout for those seeking income from their technology holdings.
The Vanguard Information Technology ETF seeks to mirror a benchmark of stocks within the information technology sector, focusing on companies that serve the computer and electronics industries. It uses a full-replication strategy to track its index, which contains a broad basket of about 310 holdings. This fund, launched in 2004, allocates approximately 98% of its assets to technology stocks. Its largest positions include Nvidia at 18.6%, Apple at 14.8%, and Microsoft at 10.02%. It has paid $2.41 per share over the trailing 12 months.
In contrast, the iShares U.S. Technology ETF was launched in 2000 and maintains a tighter portfolio of 139 holdings. Top holdings include Nvidia at 15.3%, Apple at 13.3%, and Alphabet (GOOGL 0.82%) Class A shares at 6.45% . This concentration among the largest market leaders differs from the broader sampling found in the Vanguard fund. It has a trailing-12-month dividend of $0.27 per share.
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With tech stocks leading the market higher for the past few years and themes like artificial intelligence, data centers, quantum computing, and space dominating the headlines, it makes sense to position your portfolio to capture some of the explosive gains. And because the space can be both dynamic and complicated, long-term investors are likely well served by holding tech-focused ETFs, rather than committing to following hundreds of individual companies.
Both of these ETFs have delivered monster growth for investors, but which one makes more sense for your portfolio? Surprisingly, it may come down to what the funds consider to be “technology” stocks. VGT tracks the MSCI US Investable Market Information Technology 25/50 Index, which holds large-, medium-, and small-cap stocks in the following sectors: semiconductors and semiconductor equipment manufacturers; internet services and infrastructure, which includes data centers and cloud networking and storage infrastructure; and companies that provide information technology consulting and services, technology hardware, and equipment.
IYW tracks the Russell 1000 Technology RIC 22.5/45 Capped Index. It holds semiconductor and semiconductor equipment companies, as well as hardware, software and services, and media and entertainment companies, a pretty big difference that also allows for inclusion of companies like Google parent Alphabet, which is not held in the Vanguard ETF.
A comparison between these two tech ETFs is a good reminder to investors to read the fine print. Both have been solid investments over the last five years, but with ETF investing, it’s important to understand what companies you’re actually holding on to.
Sarah Sidlow has positions in Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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Expense ratios and dividend yields set these tech ETFs apart, while portfolio composition reveals key differences in sector exposure and income potential.
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