Choosing an ETF for Tech Stock Exposure: Fidelity's FTEC vs. iShares' IYW

The Fidelity MSCI Information Technology Index ETF (NYSEMKT:FTEC) stands out for its lower costs, broader tech exposure, and modestly higher yield versus iShares U.S. Technology ETF (NYSEMKT:IYW), while both have posted similar recent performance and sector concentration.

Both FTEC and IYW aim to capture the performance of U.S. technology companies, but differ in portfolio construction, cost, and subtle sector tilts. This comparison breaks down their key differences to help investors weigh which approach may better match their goals.

The 1-yr return represents total return over the trailing 12 months.

FTEC is notably more affordable with an expense ratio that undercuts IYW by 0.3 percentage points, and it also offers a higher dividend yield, which could appeal to cost-conscious investors seeking an extra income boost.

FTEC tracks a broad technology index and holds 294 companies, offering a nearly pure-play tech allocation (98% in technology, one percent in industrials, zero percent in financial services). Its top holdings are Nvidia (NASDAQ:NVDA) at 18.25%, Apple (NASDAQ:AAPL) at 15.41%, and Microsoft (NASDAQ:MSFT) at 10.07%. The fund has been operating for more than twelve years, and there are no structural quirks or unusual constraints reported.

IYW is also tech-focused but includes a larger communication services allocation (9%) and a smaller industrials presence. Its portfolio is slightly more concentrated, with Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL), and Alphabet (NASDAQ:GOOGL) making up over 38% combined. IYW holds 139 stocks, less than half the number in FTEC, giving it a more top-heavy exposure to mega-cap tech names.

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While the Fidelity MSCI Information Technology Index ETF (FTEC) and iShares U.S. Technology ETF (IYW) both deliver exposure to the hot tech industry, some notable differences may make one a better choice than the other, depending on individual investor goals.

FTEC encompasses more companies, which provides greater diversification to help protect against a downturn in any particular stock. It’s also significantly less costly while offering a higher dividend yield. Yet a key downside is its strict definition of which stocks fall into the information technology sector. This means stocks categorized in other industries, such as Google parent Alphabet, are not included in its holdings.

IYW takes a broader approach to defining the tech stocks that are part of its fund, and that’s why Alphabet is one of its top holdings. However, because it has far fewer stocks than FTEC, its largest holdings have a greater impact on overall fund performance, and its higher expense ratio eats into the income produced by its lower dividend yield.

If your goal is to seek an ETF with broad exposure to the biggest names in tech, then IYW may have greater appeal. FTEC is for investors with more of a “set-it-and-forget-it” mindset, given its low cost and comparable returns to IYW.

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Robert Izquierdo has positions in Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, and Nvidia and is short shares of Apple. The Motley Fool has a disclosure policy.

Choosing an ETF for Tech Stock Exposure: Fidelity’s FTEC vs. iShares’ IYW was originally published by The Motley Fool