VGT vs QQQ vs XLK: Performance and Holdings

Information Technology ETF Comparison

VGT QQQ XLK
Issuer:
Vanguard
Invesco
State Street Global Advisors

Index:

MSCI US Investable Market IT 25/50 Index
Nasdaq-100 Index
S&P Technology Select Sector Index
Category:
Small Cap, Mid Cap,& Large Cap
Large Cap
Large Cap
Dividend Yield:
0.63%
0.45%
0.65%
Expense Ratio (fees):
0.10%
0.20%.
0.12%
Number of Stocks:
340
104
77
5 Year Return:
30.87%
29.85%
28.47%
Top Holding (And Weight)
AAPL (19.35%)
AAPL (11.70%)
AAPL (22.79%)

Jump To

Over the past twenty years, technology stocks have vastly outperformed the broader market. As technology tends to advance exponentially, this trend will probably only continue (if not advance) over the next twenty years.

There are three juggernaut funds that rule the ETF space within the information technology sector. Which one is best for you? Let’s get started with the comparisons right away!

TAKEAWAYS

  • VGT, QQQ & XLK represent the most popular ETFs in the tech space
  • Vanguard’s VGT has the lowest fees at 0.10%; QQQ has the highest fees at 0.20%
  • All ETFs have significant exposure to AAPL, with XLKs weightage coming in at 22.79% for this equity
  • VGT is the most diverse ETF as this fund includes small, mid & large cap stocks
  • Over the long-term (five years), VGT has performed the best; over the short-term (one year) XLK has performed the best 

VGT vs QQQ vs XLK: Comparing Benchmarks

Let’s start with the most important comparison; differentiating what these three ETFs actually attempt (quite successfully) to track.

VGT: MSCI US Investable Market Information Technology 25/50 Index

So that’s a rather confusing name for an index! What exactly does this index track? Let’s head over to the MSCI website to see what the founders of this index have to say. 

"The MSCI US IMI Information Technology 25/50 Index is designed to capture the large, mid and small cap segments of the US equity universe. All securities in the index are classified in the Information Technology sector.”

MSCI.com

So this exchange-traded fund (ETF) includes stocks in all three of the capitalization categories (small, mid, and large). When compared to the other ETFs on our list (which only include large cap companies), VGT is the best diversified because of this.

QQQ: Nasdaq-100 Index

Invesco’s QQQ ETF is by far the most popular fund on our list. However, because of its relatively high fee nature, VGT and XLK are fast catching up! (if you’d like to check out some top tech Nasdaq 100 ETFs, read our article: Differences Between Invesco’s QQQ, QQQM, and QQQJ!)

So what index does the QQQ’s track? The Nasdaq 100. The below excerpt is taken from nasdaq.com, the founders of this index:

“The Nasdaq-100® is one of the world’s preeminent large-cap growth indexes. It includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization.”

nasdaq.com

The Nasdaq-100 is a modified capitalization-weighted index. This means that the largest companies (AMZN, GOOGL, AAPL, etc.) have a larger weight than smaller companies. “Modifications” were put into place to assure a few companies did not dominate the index. The below lists two re-balancing contingencies put into place to assure this:

  1. A single company is worth > 24% of the entire index
  2. 48% of the companies have a weighting of at least 4.5%

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XLK: S&P Technology Select Sector Index

Unlike the QQQ’s, State Street’s XLK ETF takes its stocks from the S&P 500. This popular index can be broken down into seven unique sub-sectors. One of these sectors is technology, which is formally called The S&P Technology Select Sector Index, which the XLK ETF tracks.

“The Index seeks to provide an effective representation of the technology sector of the S&P 500 Index.”

ssga.com

So how many stocks in the S&P 500 fall under the information technology sector? 77. 

The S&P Technology Select Sector Index is a weighted index. When compared to other tech indices, this index places a disproportionately large emphasis on larger corporations (which we will get into soon). If you love mega-cap tech companies, this index/ETF is for you.

VGT vs QQQ vs XLK: Comparing Fees

The average ETF fee is about 0.40%. When taking that into account, every ETF on our list charges a very low fee, or “Expense-Ratio”.

We can see that Invesco’s QQQ charges a fee that is 100% higher than Vanguard’s VGT. Should this relatively marginal difference in fee structure steer you away from the QQQs?

Maybe, but let’s first take a look at the historical performance of these ETFs. If the QQQs return an extra 1% per year, I’ll gladly pay that tiny difference in fees.

VGT vs QQQ vs XLK: Comparing Performance

The below table shows how our various ETFs have performed over different spans of time. 

Rank VGT QQQ XLK
1-year
34.71%
34.39%
37.14%
3-year
37.33%
34.48%
37.89%
5-year
30.87%
28.47%
29.85%

The winner here, of course, will depend upon the time frame we are looking at. VGT appears to be the long-term winner (5 years), while State Street’s XLK has performed the best short-term (1 year).

VGT vs QQQ vs XLK: Comparing Sectors

Though all of our ETFs are tech rooted, some of the sub-sectors within their compositions deviate a little outside of tech. The below images (taken from etf.com) show the top 5 sectors that every ETF on our list invests in (click to enlarge).

VGT Sectors

QQQ Sectors

XLK Sectors

VGT vs QQQ vs XLK: Top Stock Holdings

Next up, let’s examine what stocks these ETFs actually invest in. Of particular interest here is the weight that these different ETFs place on particular stocks.

Rank VGT QQQ XLK
1.
Apple Inc. (19.35%)
Apple Inc. (11.70%)
Apple Inc. (22.79%)

2.

Microsoft Corp. (18.36%)
Microsoft Corp. (10.64%)
Microsoft Corp. (21.81%)
3.
NVIDIA (4.93%)
Microsoft (10.64%)
NVIDIA (7.15%)
4.
Visa (2.60%)
Tesla (6.08%).
Visa (2.87%)
5.
Adobe (2.14%)
NVIDIA (5.32%)
Adobe (2.80%)

We can see that Apple (AAPL) dominates these portfolios. However, the XLK ETF has almost twice as much exposure to AAPL as the QQQs. If you’re not very bullish on AAPL, XLK probably isn’t for you.

Final Word

So what’s the best ETF for you? From the various historical performances listed above, there does not appear to be a clear winner. All three ETFs have outperformed the S&P 500. 

Additionally, it is worth noting that tech stocks tend to have more risk than a benchmark like the S&P 500. 

The best hedge against risk is usually diversification. Out of the three ETFs on our list, Vanguard’s VGT ETF is the most diverse. This fund has over 300 stocks within it (QQQ has 104; XLK has 77). VGT also spans numerous market caps (small, medium, and large) while QQQ and XLK stay in the large-cap category. 

But you aren’t limited to one tech fund. With most brokerage houses charging no money for commissions, why not invest in all three?

Worth noting here is the low dividends on almost all of our ETFs. Many tech companies fall into the growth category. Growth stocks tend to invest any extra income back into the company rather than pass it on to shareholders in the form of dividends.

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Mike Martin

Mike Martin

Mike was a writer for projectfinance. He has spent over 15 years in the finance industry, working for such companies as thinkorswim, TD Ameritrade and Charles Schwab. His work has appeared in the Financial Times, the Chicago Sun-Times, and The Buffalo News.

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