The choice between Fidelity MSCI Information Technology Index ETF (NYSEMKT:FTEC) and iShares U.S. Technology ETF (NYSEMKT:IYW) often comes down to cost and diversification within the domestic technology sector.
Both funds offer broad exposure to U.S.-listed technology companies, serving as core building blocks for growth-oriented portfolios. While they target the same market segment, their underlying indexes lead to different holding counts and cost structures that may influence long-term efficiency for buy-and-hold investors.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The Fidelity fund is more affordable, with an expense ratio of 0.08% versus 0.37% for the iShares fund. Additionally, the Fidelity fund offers a higher payout, providing a 0.30 percentage point advantage in distribution yield.
Performance & risk comparison
What’s inside
Fidelity MSCI Information Technology Index ETF allocates 99% of its portfolio to technology and holds 294 securities. Its largest positions include Apple Inc (NASDAQ:AAPL) at 17.73%, Nvidia Corp (NASDAQ:NVDA) at 16.95%, and Microsoft Corp (NASDAQ:MSFT) at 12.22%. It was launched in 2013. Fidelity MSCI Information Technology Index ETF has paid $1.11 per share over the trailing 12 months, which, on its recent ~$271.6 share price, works out to a 0.4% yield.
iShares U.S. Technology ETF holds a leaner group of 148 positions, with heavy tilts toward semiconductors (38%), software (30%), and hardware (22%). Top holdings include Apple at 17.41%, Nvidia at 16.68%, and Microsoft at 13.56%. It was launched in 2000. iShares U.S. Technology ETF has paid $0.25 per share over the trailing 12 months, which, on its recent ~$236.5 share price, works out to a 0.1% yield.
For more guidance on ETF investing, check out the full guide at this link.
Which looks like the better buy
When comparing the Fidelity MSCI Information Technology Index ETF (FTEC) and the iShares U.S. Technology ETF (IYW), investors should consider several key factors. Let’s see what they tell us about each fund.
First, we should examine each fund’s strategy. FTEC is focused on mid-cap and small-cap tech stocks. It holds about 300 stocks across the software and hardware subsectors. IYW, meanwhile, holds about 150 stocks, giving it a narrower portfolio.
Two other important factors are historical performance and income potential. Here, the funds are very similar. Over the last five years, FTEC has generated a total return of 103%, equating to a compound annual growth rate (CAGR) of 15.2%. IYW, on the other hand, has delivered a total return of 102%, with a 15.1% CAGR. Neither fund delivers significant income. However, IYW has a modestly higher dividend yield of 0.4%, while FTEC’s is only 0.1%.
One final factor to weigh is cost. Here, FTEC has an edge. Its annual expense ratio is 0.08%, while IYW’s is 0.37%. For context, if a person buys $10,000 worth of each fund, they should expect to pay only $8 in annual fees for their FTEC shares but $37 in annual fees for their IYW shares.
In summary, FTEC and IYW are both tech ETFs, but due differing strategies and fees, they will appeal to different types of investors. Overall FTEC may appeal to the larger group of investors, given its lower fees. IYW, however, may still appeal to investors seeking a tighter basket of tech stocks.
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Jake Lerch has positions in Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
Choosing a Tech ETF: Low Fees vs. Targeted Exposure was originally published by The Motley Fool
