Battle of the Tech ETFs: How VGT and IYW Compare on Performance, Fees, and Diversification

Both the Vanguard Information Technology ETF (NYSEMKT:VGT) and the iShares US Technology ETF (NYSEMKT:IYW) are passively managed U.S. technology sector ETFs, designed for investors seeking exposure to leading tech companies.

Although they track similar slices of the market and share many top holdings, their differences in cost, diversification, and recent performance may appeal to different types of investors.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

VGT is far more affordable, charging around one-fourth the annual fee of IYW. It also offers a modestly higher yield, which could appeal to cost-conscious investors seeking passive dividend income.

Performance & risk comparison

What's inside

VGT holds 322 stocks and is dominated by mega-caps like Nvidia, Apple, and Microsoft, but it also includes smaller players in electronics, computer hardware, and applied science. Its sector allocation is devoted almost entirely to technology, providing diversified exposure to the tech industry.

IYW is slightly narrower, holding 141 stocks with a nearly identical sector tilt. Its top holdings are also Nvidia, Apple, and Microsoft, but these stocks make up slightly smaller portions of the portfolio compared to VGT. Both funds avoid leverage, currency hedging, and other structural quirks.

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What this means for investors

VGT and IYW both track the greater technology industry, and they share many similarities. They've earned similar total returns over the last 12 months and five years, though IYW has slightly outperformed VGT in both periods. With similar betas and max drawdowns, the two funds have historically experienced roughly the same levels of volatility.

There are a few important distinctions between the two, however. For one, VGT is broader, with nearly 200 more holdings than IYW. For investors seeking greater diversification and exposure to a broader range of companies, VGT has an edge.

VGT offers much lower fees and a higher yield, as well. Its expense ratio of 0.09% means you can expect to pay $9 per year in fees for every $10,000 invested, compared to $38 per year with IYW. While it may seem insignificant, it can add up to thousands of dollars over time -- especially for those with large account balances. VGT's higher dividend yield also means investors can earn more in passive dividend income.

Where you choose to buy will depend mostly on your goals. VGT's lower fees and higher yield can save you money over the long term, and its greater diversification can help limit risk. On the other hand, IYW's smaller portfolio and more targeted approach could help it continue to earn slightly higher returns than VGT in the future.

Glossary

ETF: Exchange-traded fund; a fund that trades on stock exchanges and holds a basket of assets.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges its investors.
Dividend yield: Annual dividends paid by a fund, expressed as a percentage of its share price.
Beta: A measure of a fund's volatility compared to the overall market, typically the S&P 500.
AUM: Assets under management; the total market value of assets a fund manages.
Max drawdown: The largest percentage drop from a fund's peak value to its lowest point over a period.
Sector allocation: The breakdown of a fund's investments by industry sectors.
Mega-cap: Companies with extremely large market capitalizations, typically over $200 billion.
Passively managed: A fund that tracks an index rather than trying to outperform it through active selection.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.

Katie Brockman has positions in Vanguard Information Technology ETF. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.