IYW vs. FTEC: Which Diversified Technology ETF Is the Better Buy for Investors?

This comparison looks at two popular U.S. technology ETFs: the iShares US Technology ETF (NYSEMKT:IYW)and the Fidelity MSCI Information Technology Index ETF (NYSEMKT:FTEC), both of which track the broader technology sector.

While both funds provide exposure to tech giants, they differ in cost, diversification, and recent performance.

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 has the edge in both fees and income, with a lower expense ratio and a higher dividend yield. This could appeal to investors focused on reducing expenses or building a stream of passive dividend income.

Performance & risk comparison

What's inside

FTEC is built for broad coverage of U.S. information technology, with 289 holdings from various corners of the tech sector. Its top positions are Nvidia, Microsoft, and Apple, and there are no unusual features or quirks to consider.

IYW is also targeted toward the broader tech sector, but it contains only 141 stocks. Its top three holdings match FTEC’s, but these three stocks make up a slightly larger proportion of the portfolio compared to FTEC.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

FTEC and IYW are both broad tech-centered funds that encompass a large swath of the tech industry. FTEC shines with its diversification, but IYW’s more targeted approach could be more lucrative.

FTEC contains more than double IYW’s number of stocks, and it also doesn’t allocate quite as much toward its top holdings. Both funds hold the same top three stocks, but those companies make up 44.42% of FTEC’s portfolio compared to 46.09% for IYW. It’s a marginal difference, but it could affect total returns if those specific companies perform particularly well or poorly.

The two funds also differ in their fee structures and income potential. FTEC offers a much lower expense ratio of 0.08% compared to IYW’s 0.38%. In other words, investors will pay $8 per year in fees for every $10,000 invested in FTEC compared to $38 per year for IYW.

Again, this is a relatively small difference on the surface. But for long-term investors or those who have substantial account balances, those fees add up. Similarly, FTEC’s higher dividend yield of 0.43% versus IYW’s 0.14% could make a difference over time in terms of passive income potential.

Performance-wise, IYW has the edge. It’s outperformed FTEC in both 12-month and five-year total returns, which could be partly due to its narrower approach. Increased diversification can help reduce risk, but with so many stocks in a single ETF, lower performers can sometimes dilute the fund’s overall earnings.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.