SOXX Delivered Larger Gains Than XLK, but With Greater Risk and Volatility

Both iShares Semiconductor ETF (NASDAQ:SOXX) and State Street Technology Select Sector SPDR ETF (NYSEMKT:XLK) aim to give investors access to the U.S. technology sector, but they differ in scope and risk. SOXX zeroes in on semiconductor companies, making it more concentrated, while XLK casts a wider net across software, hardware, and IT services. This comparison highlights which fund may appeal more depending on your desired balance of sector focus, cost, and performance history.

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.

XLK is significantly more affordable, charging just 0.08% in annual expenses compared to SOXX’s 0.34%, and its yield is slightly lower at 0.55% versus SOXX’s 0.62% — a modest difference for income-focused investors.

Performance & Risk Comparison

What's Inside

XLK holds about 70 stocks and has been around for 27 years, tracking the Technology Select Sector Index. Its portfolio covers nearly the entire technology landscape, with top positions in Nvidia (NASDAQ:NVDA) at 13.72%, Apple (NASDAQ:AAPL) at 12.82%, and Microsoft (NASDAQ:MSFT) at 11.17%. This broad approach means exposure to hardware, software, IT services, and communications equipment, not just semiconductors.

SOXX, by comparison, is made up of 30 positions entirely within the technology sector, but with a sharp focus on semiconductors. Its largest holdings include Advanced Micro Devices (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), and Nvidia, together making up a significant portion of the fund’s assets. This sector tilt makes SOXX more sensitive to chip industry cycles, while XLK spreads risk across more tech subindustries.

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What This Means For Investors

The iShares Semiconductor ETF (SOXX) is a more specialized, higher-fee fund with a focus on semiconductors, while the State Street Technology Select Sector SPDR ETF (XLK) delivers broader tech exposure at a much lower cost and with greater scale.

First, let's focus on SOXX, which has delivered superior returns over the last five years. The fund has generated a five-year compound annual growth rate (CAGR) of 21.1%, thanks to the excellent returns of top holdings like Nvidia and Broadcom. Yet, those fantastic results come with some trade offs. Most notably, SOXX has experienced several steep pullbacks, the worst of which saw the fund lose more than 45% of its value in 2022. In addition, SOXX sports an expense ratio of 0.34%. While this isn't overly expensive for an ETF, there are cheaper options to be found.

Now let's turn to XLK. This fund is more broad than SOXX, focusing on the entire tech sector, rather than just the semiconductor industry. It holds more than twice as many stocks (70), compared to SOXX (30), and it has experienced greater stability over the last five years, with a max drawdown of 33.5%. In addition, investors pay less in fees, owing to the ETF's expense ratio of 0.08%. As for performance, XLK has generated a five-year CAGR of 18.6%. While that's well above the S&P 500 (14.8%), it does trail SOXX's 21.1% CAGR.

In summary, there are many similarities between these two funds, however a few key differences stand out. More conservative investors may be better suited with XLK, due to its cheaper fees and lower historic drawdowns. Meanwhile, more aggressive investors may find the higher returns and greater sector concentration of SOXX to be irresistible.

Glossary

ETF: Exchange-traded fund; a basket of securities traded on an exchange like a stock.
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 relative 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 observed loss from a fund’s peak value to its lowest point over a period.
Total return: The investment’s price change plus all dividends and distributions, assuming those payouts are reinvested.
Sector tilt: When a fund has a heavier weighting in a particular industry or sector compared to the broader market.
Subindustries: Distinct segments within a broader industry, such as software or semiconductors within technology.
Issuer: The company or entity that creates and manages an ETF or mutual fund.

Jake Lerch has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, Nvidia, and iShares Trust - iShares Semiconductor ETF. The Motley Fool recommends Broadcom and 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.