XLK Charges One Fee Less than VGT Per $100 Invested. Here’s Why It’s Not a Reason to Choose.
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Payments are a collection error. The 0.01% difference between XLK and VGT is negligible, so your decision should be based on structure, exposure, liquidity, and investment use case rather than pure cost alone.
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The structure and profile of the business is very important. XLK’s narrow S&P 500-based approach, tight bid-ask spread, and deep options market make it best suited for active traders, while VGT offers broader exposure with more mid- and small-cap exposures for long-term investors.
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You don’t have to choose just one. Holding both may work for taxable accounts, as they are not considered very similar, allowing you to pay tax between them without triggering wash sale rules while maintaining exposure to the technology.
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Competing asset managers often offer very similar ETFs, especially when it comes to sector funds. Whether you’re looking at Vanguard, iShares, or State Street, you’ll usually find a full set of ETFs covering all 11 of the sector’s official categories.
At first glance, many of these funds look almost identical, making the choice seem like it comes down to one simple factor: fees.
Take technology, for example. You have it Technology Select Sector SPDR ETF (NYSEMKT: XLK) as well as Vanguard Information Technology ETF (NYSEMKT: VGT ). Both give you exposure to high-growth technology stocks, and both have been strong performers.
Most investors default to XLK because it is relatively cheap. It charges an average expense ratio of 0.08%, compared to 0.09% for VGT. That is one basic point. For every $100 you invest, you save one cent a year. That distinction is irrelevant, and should not be the deciding factor.
There are good reasons to choose XLK over VGT, but they have nothing to do with fees. Here’s what really matters, in my opinion.
The first major difference is the benchmark of each ETF’s track.
XLK tracks the Technology Select Sector Index, which pulls only from companies already included in the S&P 500. That results in a concentrated portfolio of approximately 73 large stocks that are already screened for size, capital, and profitability.
VGT, on the other hand, tracks a broad information technology index and owns more than 300 stocks. It is not limited to the S&P 500, so it includes both mid- and small-caps.
You would expect that a wider exposure would reduce concentration. But in practice, it is not. Because both ETFs are market-weighted, large-caps still dominate. Adding smaller companies doesn’t reduce that effect as much as you might think, because their weights are so small.
This creates a difference in performance over time. As of March 31, 2026, VGT has outperformed over the past 10 years, returning 21.44% annually compared to XLK’s 20.91%. That said, past performance alone is not a strong reason to choose one over the other.
From a portfolio construction perspective, there is an argument for a smaller approach to XLK. By adhering to the components of the S&P 500, it focuses on the largest, most established companies in the sector with strong earnings and earnings consistency.
Where the XLK really sets itself apart is in trading efficiency. The ETF has a tight bid-ask spread. On a 30-day moving average basis, XLK is trading at a spread of 0.01%, compared to around 0.04% for VGT. That difference may seem small, but it adds up for active sellers.
XLK also tends to have high trading volume, which can improve execution and reduce volatility. More importantly, it has a highly developed options market. If you’re looking to use strategies like covered calls, XLK offers additional prices, expiration dates, and tighter spreads. That gives you better flexibility and more efficient trading.
Although ETF liquidity is ultimately derived from underlying holdings, these factors are still important for performance, especially if you trade regularly or use derivatives. For long-term investors, both ETFs can serve a similar role. But if you’re doing anything beyond buying and holding, the XLK has a clear edge.
A final point that is often overlooked is that the choice between XLK and VGT should not be an either-or decision. There is a real sense of ownership of both, especially if you invest in a taxable account.
Because these ETFs track different benchmarks and are issued by different issuers, they are generally not considered “substantially similar” under IRS rules. That is important for tax loss harvesting. If one position is low, you can sell it for a capital loss and quickly flip to another without triggering the 31-day selling rule.
Despite their similar sector focus and overlapping holdings, the construction of the underlying index is sufficiently different to make them effective substitutes for this purpose. That makes them a useful pair if you want to stay invested in the tech sector while being able to capture losses along the way.
If you are not sure how this applies to your particular situation, especially for different types of accounts, it is worth checking with a financial advisor or tax professional before implementing the strategy.
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