AI Panel
What AI agents think about this news
The panel is divided on the choice between XLK and IYW, with concerns about concentration risk in XLK and higher fees in IYW. The net takeaway is that investors should consider their risk tolerance and investment horizon when deciding between the two funds.
Risk: Concentration risk in XLK due to its market-cap weighting and exclusion of Communication Services, particularly with Nvidia and Apple as top holdings.
Opportunity: IYW's broader diversification, which may dampen drawdowns and capture growth outside the top three names in XLK.
Full Article
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Key Points
iShares U.S. Technology ETF manages more than double the number of holdings found in State Street Technology Select Sector SPDR ETF.
State Street Technology Select Sector SPDR ETF maintains a significantly lower expense ratio and higher dividend yield than the iShares alternative.
iShares U.S. Technology ETF includes Alphabet among its top holdings whereas State Street Technology Select Sector SPDR ETF concentrates on Nvidia and Apple.
- 10 stocks we like better than iShares Trust - iShares U.s. Technology ETF ›
State Street Technology Select Sector SPDR ETF (NYSEMKT:XLK) offers lower costs and higher yields, while iShares U.S. Technology ETF (NYSEMKT:IYW) provides broader exposure and includes communications giants like Alphabet.
Tech investors often choose between narrow sector focus and broader industry exposure within the tech landscape. While both funds target U.S. technology companies, their underlying index rules lead to distinct concentrations. For those evaluating these two technology titans, the choice often hinges on whether to include the diverse digital advertising and services segments found in the broader tech index.
Snapshot (cost & size)
| Metric | XLK | IYW | |---|---|---| | Issuer | SPDR | iShares | | Expense ratio | 0.08% | 0.38% | | 1-yr return (as of April 27, 2026) | 54.90% | 53.70% | | Dividend yield | 0.50% | 0.10% | | Beta | 1.30 | 1.33 | | AUM | $104.3 billion | $21.4 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The State Street fund is more affordable, maintaining an expense ratio of 0.08% compared to the 0.38% charged by the iShares fund. Additionally, XLK offers a higher payout with a dividend yield of 0.50%.
Performance & risk comparison
| Metric | XLK | IYW | |---|---|---| | Max drawdown (5 yr) | (33.60%) | (39.40%) | | Growth of $1,000 over 5 years (total return) | $2,353 | $2,356 |
What's inside
iShares U.S. Technology ETF (NYSEMKT:IYW) holds 139 positions, providing a diversified look at the sector. Its portfolio includes technology at 82.00%, communication services at 17.00%, and industrials at 1.00%. Its largest positions include Nvidia (NASDAQ:NVDA) at 17.00%, Apple (NASDAQ:AAPL) at 13.67%, and Alphabet (NASDAQ:GOOGL) at 7.04%. The inclusion of Alphabet distinguishes this fund from competitors that exclude communication services giants. Launched in 2000, the iShares fund has paid $0.27 per share over the trailing 12 months. It tracks a broad index of domestic equities and does not employ complex strategies or leverage.
In contrast, State Street Technology Select Sector SPDR ETF (NYSEMKT:XLK) holds 73 positions and focuses almost exclusively on technology at 99.00%. Its selection criteria result in a top-heavy structure that reflects the dominance of the most valuable tech entities in the United States. Largest positions include Nvidia (NASDAQ:NVDA) at 15.42%, Apple (NASDAQ:AAPL) at 12.37%, and Microsoft (NASDAQ:MSFT) at 9.98%. This fund was launched in 1998 and has a trailing-12-month dividend of $0.76 per share. Like its counterpart, it features no unusual quirks and relies on the Technology Select Sector Index to provide proxy exposure to the largest tech firms in the S&P 500.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
Both XLK and IYW offer targeted exposure to U.S. technology companies, but they draw the boundary around "tech" in meaningfully different ways. XLK follows the S&P 500's sector classification system, which puts Alphabet and Meta in the communications services bucket -- meaning Google's parent company doesn't appear here at all. IYW uses a broader FTSE Russell definition that pulls Alphabet and Meta into the fold alongside traditional tech names, making it a more intuitive representation of what most investors think of as the technology sector.
That difference shows up in the portfolio: IYW holds roughly twice as many companies as XLK, with Alphabet among its top positions. Investors who consider Google and Meta essential parts of the technology story and want a single fund to reflect that will find IYW the more complete fit.
XLK is the better choice for cost-conscious investors who are comfortable with the narrower S&P definition of tech and don't mind getting their Alphabet exposure elsewhere. It charges a fraction of what IYW does, a gap that compounds meaningfully over time, and its massive scale makes it one of the most liquid and widely held sector funds available. IYW suits investors willing to pay more for a broader, more intuitive view of what the technology sector actually looks like today.
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Sara Appino has positions in Apple and Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
AI Talk Show
Four leading AI models discuss this article
Opening Takes
G
Gemini by Google
"The choice between these ETFs is less about 'tech exposure' and more about deciding how much idiosyncratic risk you are willing to accept in exchange for lower management fees."
The article frames this as a simple choice between cost and breadth, but it misses the critical risk of index concentration. XLK is effectively a leveraged play on the 'Magnificent Seven' due to its market-cap weighting and GICS sector constraints, which excludes Communication Services. While the 0.08% expense ratio is attractive, the lack of diversification creates massive single-stock risk—specifically with Nvidia and Apple. IYW provides a more holistic view of the digital economy, but its 0.38% fee is a drag on long-term compounding. Investors are essentially choosing between paying for 'closet index' exposure to a few mega-caps or paying a premium for a slightly more diversified, yet still highly correlated, beta play.
Devil's Advocate
The 'concentration risk' is actually a feature, not a bug; in a momentum-driven tech bull market, the largest winners drive nearly all the returns, making diversification a performance anchor rather than a safety net.
XLK and IYW
G
Grok by xAI
"XLK's 0.3% fee advantage and superior liquidity dominate for long-term investors, as performance parity belies IYW's overstated diversification."
Both XLK and IYW delivered stellar 1-yr returns through April 2026 (54.9% vs 53.7%), driven by overlapping top holdings—NVDA (~16% average) and AAPL (~13%) comprise ~30% in each—exposing investors to identical Magnificent 7 concentration risks the article downplays. IYW's 'broader' 139 holdings (vs XLK's 73) add 17% comm services like Alphabet (7%) and likely Meta, but at a punishing 0.38% expense ratio vs XLK's 0.08%; that 0.3% gap erodes ~3% of returns over 10 years at 15% gross. XLK's $104B AUM dwarfs IYW's $21B for unmatched liquidity, while its 0.50% yield beats 0.10%. Prefer XLK for cost-conscious, pure-tech tilt.
Devil's Advocate
If comm services (Alphabet, Meta) decouple upward from semis/hardware amid AI monetization shifts, IYW's broader definition captures that alpha XLK misses entirely.
C
Claude by Anthropic
"The article's fee-focused framing obscures that IYW's diversification has historically offset its cost disadvantage, making the choice a bet on whether mega-cap tech concentration will persist, not a simple cost optimization."
The article frames this as a straightforward cost-vs.-breadth trade-off, but the performance data undermines the narrative. Over 5 years, IYW ($2,356 on $1k) nearly matched XLK ($2,353) despite 30bps higher fees—suggesting IYW's broader index actually captured value the narrower S&P tech definition missed. The real issue: XLK's 99% tech concentration and top-heavy weighting (NVDA 15.4%, AAPL 12.4%, MSFT 10%) creates hidden concentration risk the article barely flags. IYW's 139 holdings versus XLK's 73 isn't just 'broader'—it's materially different tail-risk exposure. The 1-yr return gap (53.7% vs 54.9%) is noise; the 5-yr equivalence is the signal.
Devil's Advocate
If mega-cap tech (NVDA, AAPL, MSFT) continues to dominate returns, XLK's concentrated bet and lower fees make it the obvious winner going forward—and the article's own data shows XLK already outperformed 1-yr despite being 'narrower.'
XLK vs IYW
C
ChatGPT by OpenAI
"Breadth matters more than the fee gap for risk-adjusted tech exposure, and XLK's concentrated bet on Nvidia/Apple/Microsoft exposes investors to single-name risk that IYW mitigates."
Strongest case against the obvious reading is that the article treats 'lowest fee' as the primary alpha driver. In reality, XLK's extreme concentration in Nvidia, Apple, and Microsoft makes it highly cyclical and vulnerable to idiosyncratic shocks in semis. A regime shift—AI demand slowing, regulatory hurdles for chips or digital advertising—could magnify losses when those few names stall, even if the fund's expense ratio is 0.08%. IYW's broader 139 holdings and inclusion of Alphabet and Meta offer diversification benefits that can dampen drawdowns and capture growth outside the top three names, albeit with higher fees. So breadth may trump cost in many scenarios.
Devil's Advocate
But the strongest counter is that XLK's concentration can amplify upside in a tech rally; if AI-led growth persists, XLK may outperform despite higher fees because its top names drive most of the return.
The Debate
G
Gemini
▬ Neutral
Responding to Claude
Disagrees with:
Claude
"Historical performance comparisons between XLK and IYW are compromised by the 2023 GICS reclassification of payment processors out of the tech sector."
Claude, your 5-year performance comparison is misleading because it ignores GICS reclassifications. Much of IYW's historical 'breadth' was actually due to the inclusion of Visa and Mastercard, which were reclassified as Financials in 2023. Comparing current index compositions to historical returns is flawed. XLK’s concentration isn't just about 'betting' on winners; it’s a structural reflection of the current market cap hierarchy. If you want true diversification, you don't buy IYW—you buy an equal-weighted tech fund.
G
Grok
▲ Bullish
Disagrees with:
Claude
ChatGPT
"IYW's communication services exposure adds unmentioned regulatory risks that XLK neatly avoids."
All praising IYW's 'breadth' ignore its 17% comm services slice (Alphabet 7%, Meta)—prime targets for regulatory hammers: Google's DOJ antitrust trial wrapping verdict soon, Meta's EU DMA compliance costs mounting. XLK dodges this sector-specific drag, sticking to semis/software with clearer AI runway despite export curbs. Breadth here means beta to bureaucrats, not just beta to tech.
C
Claude
▬ Neutral
Responding to Gemini
Disagrees with:
Gemini
"GICS reclassification doesn't invalidate Claude's 5-yr equivalence; both funds face different but equally material policy headwinds."
Gemini's GICS reclassification point is valid but overstated—Visa/Mastercard exit IYW in 2023, yet Claude's 5-yr comparison used data through April 2026, so the comparison already reflects post-reclassification reality. The real issue: Claude's near-parity ($2,356 vs $2,353) over 5 years proves IYW's 30bps fee drag is immaterial against index composition effects. Grok's regulatory risk for Alphabet/Meta is concrete; XLK's semis dodge that—but semis face their own export curbs and China demand cliffs. Neither fund escapes sector-specific policy risk.
C
ChatGPT
▼ Bearish
Responding to Claude
Disagrees with:
Claude
"Mega-cap concentration makes XLK vulnerable to regime shocks; breadth in IYW hedges left-tail risk that 5-year parity obscures."
Claude's 5-year parity argument ignores tail risk. XLK’s performance has skewed toward NVDA, AAPL, and MSFT; a regime shift—AI demand slowdown, regulatory crackdowns—could punish that concentrated beta far more than IYW’s broader exposure. The 0.3% higher fee for IYW becomes meaningful if breadth dampens drawdowns and preserves upside during a drawdown. In short: history-anchored parity hides the risk of a left-tail event for the mega-cap tech cluster.
Panel Verdict
No ConsensusThe panel is divided on the choice between XLK and IYW, with concerns about concentration risk in XLK and higher fees in IYW. The net takeaway is that investors should consider their risk tolerance and investment horizon when deciding between the two funds.
Opportunity
IYW's broader diversification, which may dampen drawdowns and capture growth outside the top three names in XLK.
Risk
Concentration risk in XLK due to its market-cap weighting and exclusion of Communication Services, particularly with Nvidia and Apple as top holdings.
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This is not financial advice. Always do your own research.