XLK vs VGT Technology ETF Comparison
XLK vs VGT, or the Technology Select Sector SPDR Fund, and the Vanguard Information Technology Fund, are both technology index funds. In general tech has taken a beating since around January 2022, however at some point it is going to rebound so it might be a good idea to research some of these tech funds now so you can invest when the time is right.
But, XLK vs VGT, which technology index fund is the better fit for you? In order to determine that, we first need to look at what the index funds track, their holdings, and the risk as well as performance that results.
XLK vs VGT: Comparison
XLK vs VGT: Holdings
XLK vs VGT track very different indexes. XLK tracks the S&P Technology Select Sector Index, while VGT tracks the MSCI US IMI Information Technology 25/50 Index. Although they track different indexes, because both indexes deal with highly profitable and fast growing technology stocks, there is a large amount of overlap between the holdings of the index funds.
When looking at the largest holding of each index fund, it is Apple Inc. for both XLK vs VGT, with XLK having 23.83% AAPL and VGT having 22.94% AAPL. For both, the second highest holding is Microsoft Corp with XLK at 21.50% MSFT and VGT is 18.80% MSFT.
The biggest difference between the two is the number of holdings. XLK has far fewer holdings, with only 78, while VGT has 377 at the time of writing this article.
Although, both have about $40 billion assets under management.
XLK vs VGT: Risk
One great way of measuring risk is implied volatility. XLK has a mean implied volatility of 27.96%. The implied volatility of VGT is slightly higher at approximately 28.18%.
Although historical volatility is quite accurate, implied volatility is only a prediction of the future. Because of that, it is important that you do not take the implied volatility solely into account before making your purpose. Additionally, the implied volatility may be a measure of risk, but it is also a measure of possible reward.
Another way that risk can be assessed is through the number of holdings. If there are many holdings, and one performs poorly, then the overall ETF will not be affected as much as it would have been otherwise.
Likewise, if there are only a few holdings and one performs poorly, it will greatly affect the overall ETF performance. When looking at holdings, VGT, which has 374 holdings, will be far lower risk than XLK, at only 78 holdings.
XLK vs VGT: Performance
A good way to compare the performance of the two stocks is to look at how they have performed historically. In some cases, the index funds have not been around long enough to do an accurate comparison, but in the case of XLK vs VGT, which have been around since 1998 and 2004 respectively, we can accurately compare the two over the past few years.
As can be seen in the graph of growth below, which compares the growth of the index funds over the past five years, we can see that the growth of the stocks has been rather similar, although VGT (blue) has continuously outperformed XLK (orange).
Comparative Graph of Growth
As mentioned above, one of the possible reasons for this outperformance could be due to the larger number of holdings of VGT.
XLK vs VGT: Cost
When determining the cost of XLK vs VGT, there are two things that need to be considered. The first is the cost of the index fund itself. At the time of writing this article, XLK is about $126.18 per share, while VGT is about $324.05 per share. This means that it might be far easier to balance your portfolio using XLK.
If your portfolio is not all too big, then a purchase of VGT may be too much of your overall investments for your comfort, especially considering the volatility of the technology sector.
The second set of costs to consider are the cost required to keep the position, in other words, the expense ratio.
In the case of XLK vs VGT, the expense ratio for both is 0.10%. This means that for every $100 of each index fund that is owned, it will cost you $0.10 per annum. This number is important to consider as it can greatly affect growth over time.
XLK vs VGT: Dividend Income
The XLK vs VGT Dividend yield is another important factor, especially in comparison to the cost. XLK has had a dividend yield of about 1.02% per share over the past year. VGT is a bit lower at about 0.90% over the past year.
These are very similar, and are a great deal higher than the expense ratio. It is, however, important to note that it is not compulsory for dividends to be paid out, and that historical payment is no guarantee that it will happen in the future.
XLK vs VGT: Summary
Fund name | XLK | VGT |
|---|---|---|
Index Tracked | ||
Holdings | 78 | 374 |
Assets managed | $38.36B | $39.74B |
Implied Vol | 27.96% | 28.18 |
Price Jan 11th 2023 | $126.18 | $324.05 |
Expense Ratio | 0.1% | 0.1% |
Latest Dividend | 1.02% | 0.9% |
Technology has, historically, been a high growth sector. As technology continues to play a large role in our lives, it may be worth diversifying into the sector in order to take advantage of the growth and innovation.
XLK vs VGT are both great choices, as the ETFs have multiple holdings, making them lower risk than individual stocks. However, due to the historical outperformance of VGT, as well as the larger number of holdings and resulting lower risk, it may be better for you if you have a slightly larger portfolio, or trade through a platform that allows you to purchase a fraction of a share.
If that is not the case, however, then it may be better to invest in the cheaper XLK, in order to ensure that your portfolio remains well balanced.
Either way, it is important to consider your individual trading goals before investing in the technology sector. Remember that the key to becoming a successful trader is to manage risk. Trade responsibly.
After comparing XLK vs VGT, you might also have a look at FTEC vs VGT or perhaps 2 clean energy funds ICLN vs QCLN
