Best Tech ETFs 2026: XLK vs VGT (Which One Wins?)

If you want to bet on the future of technology, two giants dominate the field: XLK (State Street) and VGT (Vanguard). On the surface, they look identical. Both hold Apple, Microsoft, and Nvidia. However, their underlying rules differ significantly. XLK is strictly for S&P 500 giants, while VGT casts a wider net. Here is the breakdown of fees, risks, and the hidden “Rebalancing Rule” that can cost you money.

BMT Wall St. Team BMT Wall St. Team · 📅 Jan 2026 · ⏱️ 7 min read · INVESTING › ETFS
Fee
0.09%
XLK Expense RatioCheap
Fee
0.10%
VGT Expense RatioCheap
Holdings
~318
VGT is BroaderDiff

1. The Rule: S&P 500 vs. All-Cap

The main difference lies in which “pool” of stocks they fish from.

The Selection Criteria
XLK (Technology Select Sector SPDR): Only selects tech companies from the S&P 500. It ignores fast-growing mid-cap companies that haven’t made it into the S&P 500 yet.
VGT (Vanguard Information Technology): Tracks the MSCI US I.M. Info Tech Index. It buys almost every tech company in the US, including small and mid-caps.

2. Head-to-Head Comparison

VGT offers roughly 4x more holdings than XLK.

Feature XLK (State Street) VGT (Vanguard)
Expense Ratio 0.09% ($9/yr per $10k) 0.10% ($10/yr per $10k)
# of Holdings ~67 Stocks ~318 Stocks
Top 10 Weight Very High (~65%+) High (~58%)
Dividend Yield ~0.7% ~0.7%

3. Risk: The “Top Heavy” Problem

Because these funds are “Market Cap Weighted,” the biggest companies eat up most of the pie. You are not as diversified as you think.

Fund Top 3 Holdings Portfolio Concentration
XLK ~45%
Apple/MSFT/Nvidia Only
VGT ~40%
Slightly Better
Equal Wgt
(RSPT)		 ~5%
True Diversification
Planning Note
If you already hold individual shares of Apple or Nvidia, it is generally safer to choose VGT over XLK to avoid accidental “over-concentration” where half your portfolio depends on just two companies.

4. Strategy: The “Rebalancing” Drag

This is a technical but critical difference.

  • The Issue: XLK must follow strict IRS diversification rules. If two companies (e.g., Apple and Microsoft) get too big, the fund is forced to sell portions of them to stay compliant.
  • The Consequence: In volatile years (like 2024), this rule forced XLK to sell winners at the wrong time, causing it to underperform VGT significantly.
  • The Takeaway: VGT’s broader basket makes it less susceptible to these arbitrary “cap” rules.

5. Warning: Where is Google?

Don’t buy these funds assuming you own “Big Tech.”

⛔ Missing Stocks

Due to a sector reclassification in 2018, the following are NOT in XLK or VGT:

  • Google (Alphabet) → Communication Services (XLC).
  • Meta (Facebook) → Communication Services (XLC).
  • Amazon → Consumer Discretionary (XLY).
  • Tesla → Consumer Discretionary (XLY).

6. Frequently Asked Questions

What about QQQ?
QQQ (Nasdaq 100) is different. It includes Google, Amazon, and even Pepsi (non-tech). If you want broad “Growth” exposure including those giants, QQQ is often a better “one-stop” shop than XLK or VGT.
Are these funds safe?
They are volatile. Tech stocks move fast. A 20-30% drop in a single year is common for both XLK and VGT during market corrections. They are considered “High Risk / High Reward.”
Which one pays more dividends?
Both are low (~0.7%). Tech companies prefer to reinvest profits into R&D rather than paying dividends. If you want income, look for “Dividend Aristocrats” or Real Estate ETFs instead.