Tech ETFs: VGT Boasts Lower Fees, While IYW Provides More Concentrated Tech Exposure

Vanguard Information Technology ETF (NYSEMKT:VGT) and iShares U.S. Technology ETF (NYSEMKT:IYW) both deliver U.S. tech sector exposure, but IYW comes with a higher fee, a slightly lower yield, and a modest tilt toward communication services stocks compared to VGT’s more focused tech lineup.

VGT and IYW are two of the largest U.S. technology ETFs, designed for investors seeking access to leading tech companies in a single fund. While both aim to capture the sector’s growth, differences in cost, portfolio makeup, and risk profile may sway the choice depending on specific investor priorities.

Snapshot (Cost & Size)

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.

VGT looks more affordable for long-term holders, charging 0.09% annually versus IYW’s 0.38%. VGT also pays a higher dividend yield, while IYW’s payout is slimmer by 0.2 percentage points.

Performance & Risk Comparison

What's Inside

IYW holds roughly 140 U.S. stocks, tracking the technology sector with a notable 9% allocation to communication services companies as of its latest data. Its top three positions—Nvidia Corp (NASDAQ:NVDA), Apple Inc (NASDAQ:AAPL), and Microsoft Corp (NASDAQ:MSFT)—make up a sizable portion of assets. The fund’s long history (over 25 years) and broad sector reach may appeal to those seeking both established and emerging tech names, with no leverage, hedging, or ESG screens in play.

VGT, in contrast, is built around a more concentrated list of 310 stocks, dominated by technology (98%) with only minor tilts toward industrials and financials. Its largest holdings mirror IYW, but with slightly different weights: Nvidia, Apple, and Microsoft. This focus may suit investors seeking the purest exposure to the traditional tech sector, with minimal overlap into other industries.

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What This Means for Investors

For investors seeking exposure to U.S. tech stocks, both Vanguard Information Technology ETF (VGT) and iShares U.S. Technology ETF (IYW) are worthy of consideration. However, there are some key differences between these two funds. Here’s what investors should know.

First off, both funds have a long performance history, stretching back more than 20 years. IYW is slightly older, having been started in 2000, while VGT dates back to 2004.

As for performance, VGT edges out its rival — but only slightly. VGT has generated a total return of 1,670% since 2004, equating to a compound annual growth rate (CAGR) of 13.9%. IYW, meanwhile, has generated a total return of 1,560%, with a CAGR of 13.5%.

As for holdings, there is significant overlap between the two funds, with top holdings dominated by big tech giants from the Magnificent Seven. That said, VGT (310) holds more than twice as many stocks compared to IYW (140).

Turning to fees and income, VGT comes out ahead. The Vanguard fund boasts an expense ratio of only 0.09%, while IYW charges 0.38%. As for dividends, VGT has a higher yield of 0.4% compared with 0.2% for IYW.

In summary, both funds are solid choices for tech-focused investors, meaning individual investor preferences should be the deciding factor in most cases.

Jake Lerch has positions in Nvidia and Vanguard Information Technology ETF. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia and is short shares of Apple. The Motley Fool has a disclosure policy.