XLK vs VGT: Which Tech Sector ETF Should You Hold?

Two Ways to Bet on Technology

Technology is the most popular sector ETF category by assets, and XLK and VGT are the two dominant options. Both give you concentrated exposure to the U.S. tech sector. But they're constructed differently, and those construction differences have led to materially different returns over various periods.

Compare XLK and VGT in full detail at ETFDuel.

What They Track

XLK (Technology Select Sector SPDR Fund) tracks the Technology Select Sector Index — a subset of the S&P 500 that includes companies classified in the technology sector plus select internet companies. XLK is governed by S&P's GICS (Global Industry Classification Standard) and holds about 65-70 stocks.

VGT (Vanguard Information Technology ETF) tracks the MSCI US Investable Market Information Technology 25/50 Index. It uses MSCI's sector classification and holds about 320 stocks, including mid and small-cap tech companies not in the S&P 500. VGT also uses the "25/50" rule, which limits any single stock to 25% of the fund and all stocks over 5% to a combined 50%.

The Critical Difference: Weighting Rules

This is where XLK and VGT diverge meaningfully. XLK uses a modified market-cap weighting with a hard cap: no single stock can exceed roughly 22% of the portfolio at each quarterly rebalance. More importantly, since mid-2024 XLK's methodology was adjusted such that the top two holdings (historically Apple and Microsoft) are capped around their natural weights as determined by float-adjusted market cap within the index.

In practice, this means that when Apple's market cap surged, XLK periodically had to trim its Apple weight. VGT does not have the same mechanism — it simply follows market-cap weights more directly.

The result: there have been periods where VGT held Apple at 20%+ of the portfolio, while XLK held it at 15-18%. During years when Apple surged, VGT outperformed. During years when Apple lagged, XLK outperformed.

Holdings and Sector Coverage

Both funds include the usual suspects: Apple, Microsoft, NVIDIA, Broadcom, Salesforce, Accenture, Adobe, Cisco, Oracle. The key differences:

• VGT holds ~320 stocks vs XLK's ~65-70, giving much broader mid and small-cap coverage
• VGT may include payment companies (Visa, Mastercard) that XLK excludes (classified as Financials under S&P GICS)
• XLK includes some companies that MSCI classifies differently

The breadth difference means VGT captures more of the small and mid-cap tech universe — companies that could be the next NVIDIA or Salesforce. This is a theoretical advantage but hasn't consistently translated to better returns given how dominant mega-caps have been.

Expense Ratios

• XLK: 0.09%
• VGT: 0.10%

Essentially identical in cost.

Performance Comparison

Over the last 10 years, both funds have delivered exceptional returns — typically in the 18-20% annualized range — reflecting the dominance of mega-cap tech. The return difference between them has varied:

• In years when Apple significantly outperformed: VGT had the edge (more Apple weight)
• In years when NVIDIA and smaller-cap tech surged: VGT had the edge (broader holdings)
• In 2022-2023 rotation: XLK's lower concentration occasionally provided slightly smoother drawdowns

Over the full 10-year period, returns have been within 1-2% annually of each other. Past performance does not guarantee future results.

Liquidity

XLK is significantly more liquid than VGT. XLK regularly trades 5-10 million shares per day; VGT trades 500,000-1 million. For retail investors buying and holding, this difference doesn't matter. For options traders or institutional investors needing to execute large block trades, XLK is the standard.

XLK's Rebalancing Mechanism

One interesting quirk of XLK: when it rebalances quarterly, significant weight shifts between Apple and Microsoft can occur depending on their relative market caps at the time. This has occasionally created market-moving trades as XLK's rebalancing is well-known and anticipated by traders. For long-term holders, this is noise — but it's worth understanding.

Which Should You Choose?

• Choose XLK if: You want maximum liquidity, you trade options, you prefer an S&P 500-derived tech index, or you want more concentrated mega-cap tech exposure.
• Choose VGT if: You want broader exposure including mid and small-cap tech, you prefer Vanguard's fund family, or you want more diversification across the tech sector beyond the top 10.

Should You Own a Tech Sector ETF at All?

Worth asking. If you already own VTI or SPY, you have ~28-30% tech exposure. Adding XLK or VGT tilts your portfolio further toward a sector that's already dominant in broad indices. If tech underperforms for a decade — due to regulation, valuation compression, or disruption — a concentrated tech ETF will hurt significantly more than the total market.

Tech sector ETFs make most sense as a deliberate, eyes-open bet that technology will continue to outperform — not as a default choice for investors who simply associate "tech" with "growth."

Bottom Line

XLK and VGT are both excellent tech sector ETFs. XLK wins on liquidity and options market depth. VGT wins on breadth and small-cap coverage. Returns have been similar over long periods. The more important question is whether you want concentrated tech sector exposure at all, given that broad market ETFs already have significant tech weights. Use ETFDuel to compare their current holdings, returns, and expense ratios side by side.