FTEC vs. SOXX: Is Broad Tech Diversification Better Than Targeted Semiconductor Exposure?

The iShares Semiconductor ETF (NASDAQ:SOXX) and the Fidelity MSCI Information Technology Index ETF (NYSEMKT:FTEC) both aim to give investors access to technology stocks, but their approaches diverge.

SOXX focuses exclusively on U.S.-listed semiconductor companies, while FTEC tracks a broader range of the tech sector. This comparison looks at their fees, performance, risk, and what’s actually inside each fund to help investors weigh their options.

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.

FTEC is more affordable on fees, charging a much lower expense ratio. In terms of income potential, however, SOXX has a slight edge with a higher dividend yield.

Performance & risk comparison

What's inside

FTEC holds 289 stocks and covers a broad swath of the tech sector, with 98% of assets in technology stocks, 1% in communication services, and a small sliver in industrials. Its top positions include Nvidia, Microsoft, and Apple.

While these top holdings make up a significant portion of the portfolio, FTEC offers more diversification across the industry overall. The fund has been around for over 12 years, providing a long track record for comparison.

SOXX, in contrast, focuses exclusively on the semiconductor industry, with all holdings in the technology sector. Its top three stocks — Nvidia, Micron Technology, and Advanced Micro Devices — indicate a more concentrated approach, with just 30 holdings total.

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What this means for investors

FTEC and SOXX take very different approaches to covering the tech sector, and each could be appealing to investors depending on what you’re looking to achieve.

FTEC is much broader, with nearly 10 times as many holdings as SOXX. It covers a large swath of the tech industry, with stocks from a wide variety of subsectors — including semiconductors. This increased diversification can reduce the fund’s risk and volatility, especially during market downturns.

SOXX, on the other hand, consists solely of semiconductor stocks. This targeted approach can be both an advantage and a risk. When the semiconductor industry is thriving — as it has been over the last several years — this ETF can be lucrative. Case in point: SOXX has earned more than double FTEC’s total returns over the last 12 months.

The downside to a niche ETF like SOXX, however, is that the downturns tend to be more severe. SOXX has experienced a much steeper max drawdown, indicating more significant price fluctuations compared to FTEC.

When choosing between the two funds, consider your goals. If you’re looking for a broad tech fund that can help minimize the impact of volatility, FTEC may be your best bet. Investors who are willing to take on more risk for the chance to earn potentially lucrative returns, however, may prefer SOXX’s targeted approach.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Micron Technology, Microsoft, Nvidia, and iShares Trust - iShares Semiconductor ETF. The Motley Fool has a disclosure policy.