Better Tech ETF for 2027: State Street's XLK vs. Fidelity's FTEC

The State Street Technology Select Sector SPDR ETF (NYSEMKT:XLK) and Fidelity MSCI Information Technology Index ETF (NYSEMKT:FTEC) both provide ultra-low-cost technology exposure, differing primarily in their breadth of holdings and long-term risk-adjusted returns.

Selecting a technology fund often comes down to a choice between large-cap concentration and total-market breadth. While both funds are anchored by the same massive software and hardware leaders, their portfolio construction creates different outcomes for investors looking for mid-cap participation within the tech sector.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Both funds carry an identical expense ratio of 0.08%, making them two of the most affordable options in the category. The yield difference is minimal, with the State Street fund providing a slightly higher payout than its Fidelity peer.

Performance & risk comparison

What's inside

The State Street Technology Select Sector SPDR ETF focuses on the technology portion of the S&P 500, offering exposure to the largest and most established companies in the industry. The portfolio is strictly 100% tech and holds 76 stocks, meaning it skips over the small-cap segment to favor stability and size. Its largest positions include Apple (NASDAQ:AAPL) at 16.41%, Nvidia (NASDAQ:NVDA) at 13.19%, and Microsoft (NASDAQ:MSFT) at 12.77%. The fund was launched in 1998, and has paid $0.83 per share over the trailing 12 months, which on its recent ~$168.9 share price works out to a 0.5% yield.

The Fidelity MSCI Information Technology Index ETF tracks a much broader index, including 294 holdings that reach further down the market-capitalization scale. Its sector makeup is 99% technology, with trace amounts in industrials and financial services. Its largest positions include Apple at 18.96%, Nvidia at 14.80%, and Microsoft at 13.21%. This fund was launched in 2013 and manages $20.8 billion in assets under management (AUM), while paying $1.11 per share over the trailing 12 months, which on its recent ~$263.8 share price works out to a 0.4% yield.

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Which looks like the better buy

Investors seeking exposure to the hot technology industry have two distinct choices in the State Street Technology Select Sector SPDR ETF (XLK) and the Fidelity MSCI Information Technology Index ETF (FTEC). Both share similarities, such as their expense ratios, betas, and dividend yields.

The key factors setting XLK and FTEC apart are their AUMs and the size of their holdings. XLK's far larger AUM gives it greater liquidity, making it an ideal fund for active traders. It also focuses only on companies within the S&P 500, granting you exposure to the biggest names in tech. However, this concentration means you miss out on the growth potential of smaller companies.

FTEC's key strength is its superior diversification compared to XLK. With nearly 300 holdings, this ETF provides broader exposure across the technology sector. This also helps to cushion against a single stock impacting overall performance.

Whether FTEC or XLK is right for you depends on your goals. If you want greater liquidity and a focus on the big tech companies, XLK is the better choice. If you seek broad exposure to tech businesses to capture the greater upside potential of mid- and small-cap stocks, FTEC is the way to go.

Robert Izquierdo has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.