XLK Charges One Penny Less Than VGT Per $100 Invested. Here Is Why That Is Not the Reason to Choose It.

Competing asset managers tend to offer very similar ETF lineups, 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 official sector classifications.

On the surface, many of these funds look nearly identical, which makes the choice seem like it comes down to one simple factor: fees.

Take technology, for example. You have the Technology Select Sector SPDR ETF (NYSEMKT: XLK) and the Vanguard Information Technology ETF (NYSEMKT: VGT). Both give you exposure to high-growth tech stocks, and both have been strong performers.

A lot of investors default to XLK because it’s slightly cheaper. It charges a 0.08% expense ratio, compared to 0.09% for VGT. That’s one basis point. For every $100 invested, you’re saving a single penny per year. That difference is negligible, and it shouldn’t be the deciding factor.

There are valid reasons to prefer XLK over VGT, but they have nothing to do with fees. Here’s what actually matters, in my opinion.

Different Benchmarks, Different Exposure

The first key difference is the benchmark each ETF tracks.

XLK follows the Technology Select Sector Index, which pulls only from companies already included in the S&P 500. That results in a more concentrated portfolio of about 73 large-cap stocks that have already been screened for size, liquidity, and profitability.

VGT, on the other hand, tracks a broader information technology index and holds over 300 stocks. It’s not limited to the S&P 500, so it includes more mid- and small-cap names.

You might expect that broader exposure would reduce concentration. But in practice, it doesn’t. Because both ETFs are market-cap weighted, the largest companies still dominate. Adding smaller companies doesn’t dilute that effect as much as you might think, since their weights are relatively minor.

This does create some differences in performance over time. As of March 31, 2026, VGT has slightly outperformed over the past 10 years, returning 21.44% annualized versus 20.91% for XLK. That said, past performance alone isn’t a strong reason to choose one over the other.

From a portfolio construction standpoint, there’s an argument for XLK’s narrower approach. By sticking to S&P 500 constituents, it focuses on the largest, most established companies in the sector with more robust profitability and earnings consistency.

Why XLK Stands Out for Trading

Where XLK really separates itself is in trading efficiency. The ETF has tighter bid-ask spreads. On a 30-day median basis, XLK trades around a 0.01% spread, compared to about 0.04% for VGT. That difference may seem small, but it adds up for active traders.

XLK also tends to have higher trading volume, which can improve execution and reduce slippage. More importantly, it has a much more developed options market. If you’re looking to implement strategies like covered calls, XLK offers more strike prices, more expiration dates, and generally tighter spreads. That gives you better flexibility and more efficient trades.

While ETF liquidity ultimately comes from the underlying holdings, these factors still matter in practice, especially if you’re trading frequently or using derivatives. For long-term investors, both ETFs can serve a similar role. But if you’re doing anything beyond buy-and-hold, XLK has a clear edge.

Why It Doesn’t Have to Be a Zero-Sum Choice

One final point that often gets overlooked is that choosing between XLK and VGT doesn’t have to be an either-or decision. There’s a practical case for owning both, especially if you’re investing in a taxable account.

Because these ETFs track different benchmarks and are issued by different providers, they are generally not considered “substantially identical” under IRS rules. That matters for tax-loss harvesting. If one position is down, you can sell it to realize a capital loss and immediately rotate into the other without triggering the 31-day wash sale rule.

Despite their similar sector focus and overlapping holdings, the underlying index construction is different enough to make them viable substitutes for this purpose. That makes them a useful pair if you want to stay invested in the tech sector while still being able to capture losses along the way.

If you’re unsure how this applies to your specific situation, especially across different account types, it’s worth checking with a financial advisor or tax professional before implementing the strategy.